Retail inflation shoots up to 5.59%; may peak during Jan-Mar

The consumer price index (CPI) or retail inflation has shot up to 5.59 per cent in December month as compared to 4.91 per cent in the month of November 2021.

The big jump in the December month is following a flight path of the Reserve Bank of India (RBI), which has forecasted a peak in the fourth quarter (January -March) of 2021-22. 

The central bank actually believes that inflation will soften thereafter.

The RBI's prognosis is very contrarian as the global central bankers are already hiking interest rates to fight the inflation danger.

US Fed chairman Jerome Powell had said this week that he expects a series of interest rate hikes this year, along with the withdrawal of bond purchases to reduce surplus liquidity in the market.  Bank of England has already hiked the interest rates for the first time in more than three years. In fact , the central bankers of Russia, Mexico, and dozen others have raised rates.

The RBI has projected a CPI of 5.3 per cent for 2021-22, which is closer to 6 per cent upper target set by the government for the monetary policy committee.

The next monetary policy committee meeting will take place in February 5 to 7 next month. "With inflation ruling high, it will be a concern for the MPC when it deliberates on the policy next month. There is a case for supporting a rate hike – at least of reverse repo," says Madan Sabnavis, Chief Economist at Bank of Baroda. In fact , the benchmark repo rate has been kept at 4.0 per cent for the last 20 months to support the growth and recovery post the pandemic. 

Retail inflation, which touched a high of 6.30 per cent in May last year, has ended the year with 5.59 per cent in December 2021. In fact, retail inflation has been inching upwards from October onwards as it touched a low of 4.35 per cent in September last year.

CPI closed in October with 4.48 per cent and November with 4.91 per cent.

Pankaj Pathak, Fund Manager-Fixed Income,  Quantum Mutual Fund, in its recent report had said that going into 2022, the path of monetary policy has become increasingly uncertain, and the RBI may not remain as supportive of the bond market as they have been in the last few years. "Inflation has been a lot more persistent over the last two years and there is no clear sign of it coming down in 2022," he said.