Inflation accelerates to 14-month high level at 7.52% in November; cements case for 25 basis rate hike

Cementing the case for a 25 basis point rate hike in RBI’s upcoming mid-quarterly policy review, India's main inflation gauge, based on monthly WPI, accelerated to highest level since September 2012 at 7.52% for the month of November as against eight month high figure of 7.00% (Provisional) for the previous month of October and 7.24% during the corresponding month in the previous year, mainly driven by food price inflation which rose at the fastest clip since June 2010. Food prices rose 19.93% year-on-year in November, faster than an annual rise of 18.19% in October.

In another worrying trend, the inflation number for September was revised sharply upwards to 7.05% from earlier estimate of 6.46%. Meanwhile, build up inflation rate in the financial year so far was 6.70% compared to a build up rate of 4.84% in the corresponding period of the previous year.

The Wholesale Price Index for ‘All Commodities’ (Base: 2004-05 = 100) for the month of November, 2013 rose by 0.7% to 181.5 (provisional) from 180.3 (provisional) for the previous month. Out of this, Manufactured Products, the major group with weight of 64.97%, rose by 0.2% to 151.9 (provisional) from 151.6 (provisional) for the previous month.  Within the group, index for Food Products group rose by 0.6% to 170.8 (provisional) from 169.8 (provisional) for the previous month due to higher price of gingelly oil (10%), processed prawn (6%), rice bran oil and wheat flour (atta) (3% each),  sooji (rawa), maida, ghee, oil cakes and palm oil (2% each) and copra oil, tea dust (blended), cotton seed oil, soyabean oil, groundnut oil and mustard & rapeseed oil (1% each).  However, the price of gur (5%), khandsari and tea leaf (unblended) (2% each) and tea dust (unblended), tea leaf (blended), sugar and sunflower oil (1% each) declined.

Meanwhile, Primary Articles, the group having a weightage of 20.12% in overall index, rose by 1.9% to 256.3 (provisional) from 251.6 (provisional) for the previous month. The index for Food Articles group rose by 2.0% to 256.4 (provisional) from 251.4 (provisional) for the previous month due to higher price of egg (8%), condiments & spices (7%), fruits & vegetables (6%), beef & buffalo meat and fish-marine (5% each), pork (4%), urad and jowar (3% each), moong, maize, ragi and wheat (2% each) and arhar, mutton, masur, milk and barley (1% each).  However, the price of fish-inland (10%), tea (5%), gram (2%) and poultry chicken and rice (1% each) declined.

Further, Fuel & Power, having weight of 14.91%, too rose by 0.1% to 209.6 (provisional) from 209.4 (provisional) for the previous month due to higher price of lpg (5%), bitumen (2%) and high speed diesel (1%).  However, the price of aviation turbine fuel (5%), petrol and kerosene (2% each) and furnace oil (1%) declined.

Thus, while, costlier fruits and vegetables such as onions and tomatoes that had pushed retail inflation to a nine-month high of 11.24% in November, sharpened the dilemma for RBI Governor Raghuram Rajan ahead of next week's monetary policy announcement, the latest data confirms the case of RBI hiking key policy rates to rein in the spiraling inflation.