Nov retail inflation rises to 0.71%; food remains in deflation zone, Pg15

Key Highlights:

• India's retail inflation rose to 0.71% in November from 0.25% in October, according to MoSPI data.
• Food prices continued to be in deflation for the sixth consecutive month, down by 3.91% in November.
• The RBI's Monetary Policy Committee (MPC) previously cut the repo rate by 25 bps to 5.25%.
• Gold and silver inflation hit record highs of 58.32% and 65.52%, respectively, in November.

Detailed Insights:

• The increase in retail inflation was primarily due to an unfavorable base effect, particularly impacting food items.
• Deflation in vegetables and pulses significantly contributed to the overall food deflation, while cereal inflation hit a 50-month low.
• The current headline inflation is below the RBI's medium-term target of 4% for the tenth consecutive month and within the 2-6% flexible inflation targeting range.
• Despite the overall food deflation, prices for vegetables and pulses saw a slight increase compared to October, while egg prices experienced the largest month-on-month increase.
• Elevated gold and silver inflation kept core inflation steady at 4.4%, offsetting the impact of GST rate cuts.
• Economists anticipate a potential further interest rate cut by the MPC in early February, given the subdued headline inflation and moderating GDP growth.

Key Concepts Involved:

• Inflation: The rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling.
• Deflation: A decrease in the general price level of goods and services; it occurs when the inflation rate falls below 0%.
• Repo Rate: The rate at which the central bank of a country lends money to commercial banks in the event of any shortfall of funds.
• Monetary Policy Committee (MPC): A committee of the central bank that is responsible for setting the short-term nominal interest rate to attain an explicit inflation target.