India's retail inflation rose to a almost six-year-high in January 2020, according to government data released on Tuesday evening, at 7.59%.
According to government data, Consumer Price Index (CPI) inflation stood at a whopping 7.59% last month, slightly higher than the previous high of 7.35% that was recorded in December 2019. Inflation in food and beverages stood at 11.8% as compared to 12.16% in December 2019.
Housing turned costlier by 4.20 per cent in January 2020, while for fuel and light, the inflation print was 3.66 per cent. Due to higher inflation, RBI has been maintaining a status quo since December 2019. "If inflation continues to hover above 6 per cent, we don't expect RBI to cut interest rate or change its accommodative policy stance".
Inflation in vegetables spurt to 50.19 per cent in January this year, while that for pulses and products, it rose to 16.71 per cent.
"The internals of the food inflation are worrying, given a broad-based uptick across categories that tend to be sticky, such as proteins, and a narrower-than-expected reduction in inflation for vegetables".
Electricity generation also dipped 0.1 per cent as against a growth of 4.5 per cent in December 2018.
Nayar added that regardless of the level of retail inflation, the stance of the RBI for the monetary policy is likely to be retained as accommodative, for as long as the MPC considers the output gap to be negative. Inflation in January is well above the Reserve Bank of India's (RBI) medium-term target of 4 per cent for the fourth straight month. While, unexpectedly IIP has contracted to 0.3 per cent in December from 1.8 per cent in November. "The timing and magnitude of the next rate cut will depend on how quickly inflation appears to be reverting back towards 4 percent". The central bank had kept its repo rate unchanged at 5.15% last week, despite slowing growth, and revised up its inflation projections, estimating it would range between 5.0% and 5.4% in the first half of the upcoming fiscal year.
Meanwhile, a separate set of data showed that the Index of Industrial Production shrunk 0.3% in December 2019, compared with an increase of 1.82% in November 2019. The cumulative growth in April-December over the corresponding period of the previous year was 0.5%, the data showed.