The consumer price index (CPI) for the month of December came at 7.35 percent on Monday.
The main culprit for inflation shooting above 7 percent was food prices. The vegetable price inflation reading has come at a whopping 60.5 percent versus an already very high 35 percent in November.
The Reserve Bank of India (RBI) will hold its next policy review from February 4 to 6. The data assumes significance as the RBI in its last monetary policy review maintained the key lending rates on account of rising retail inflation.
Anubhuti Sahay, Head-South Asia Economic Research (India) at Standard Chartered Bank said that the number was much higher than his expectations.
“The number is much higher than what we were expecting. We were looking at 6.9 percent, but it is almost 30-40 basis points higher. It is pretty much driven by food inflation which is almost 1 percent higher than what we were expecting and given that it has a weight of around 40 percent in the CPI basket, this number clearly shows that the drive is driven by weather factors and should ebb off as we move further into 2020,” he said.
Speaking about the core CPI inflation, Indranil Pan, Chief Economist at IDFC First Bank said, “I believe the core should be around the 4 percent level. I think one of the critical things that needs to also be watched out and I am not sure whether we can have a long term view on that is the personal FX which would include the upside that we are seeing to the gold inflation at this point in time.”
Sameer Narang, Chief Economist at Bank of Baroda said that the vegetable price inflation this year was reminiscent of FY14 but there were differences.
"The macro situation is very different. That time around the overall CPI inflation was running at 10 percent or thereabouts and most of the broad indicators of inflation were close to double digits. Even food and beverages that year were in double-digit. This year structurally you are going to see lower inflation anyways and you will have to see it off to some extent because most of it is driven by this quirk in the supply side situation because of the adverse monsoon and things should pan out better for us,” he reasoned.
On the bond yields, Jayesh Mehta MD & Country Treasurer at Bank of America said, “The number is quite shocking and definitely we are seeing some hardening of yields. In fact people were expecting 6.50-6.75 percent and people were thinking that if the yield comes higher tomorrow, then that would be a buying opportunity. However, with 7.35 percent print, I do not think anybody will look to buy."