Retail inflation rises to 5.21 pc, dashes rate cut hopes

  • Retail inflation rises to 5.21 pc, dashes rate cut hopes

Retail inflation rises to 5.21 pc, dashes rate cut hopes

Core CPI increased 1.8 percent in the 12 months through December, picking up from 1.7 percent in November.

Consumer price inflation accelerated to 5.21 percent from 4.88 percent in November. Mining grew at 1.1 per cent in November while electricity grew at 3.9 per cent.

The data were unlikely to have much influence on interest rate expectations, however, as the Federal Reserve prefers to take its measure of price pressures from personal consumption expenditure (PCE) data, published later in the month.

Driven by rising food prices and higher pay for government employees, December retail inflation shot up to 17-month high of 5.2 per cent, government data showed on Friday.

Two crucial macro numbers - retail inflation for December and factory output for November - released by the government on Friday indicate that the economy could well be on the recovery path. The Commerce Department previously said they had increased 0.8 per cent in November.

A key gauge of underlying producer price pressures that excludes food, energy and trade services edged up 0.1 percent last month.

Food inflation rose to 4.96 per cent in December from 4.42 per cent in November.

Shortly after the latest CPI report, the 10-year inflation breakeven rate, or the yield gap between 10-year Treasury Inflation Protected Securities and regular 10-year Treasury notes, hit 2.05 percent, its highest level since March, Tradeweb and Reuters data showed.

The Fed raised interest rates three times in 2017.

Paul Ashworth, chief US economist at Capital Economics, said the inflation report bolstered his view that the Fed will accelerate rate increases this year. In its last monetary policy review, RBI had said that "the recent increase in oil prices may have a negative impact on margins of firms and GVA (Gross Value Added) growth". Core inflation, which excludes food and fuel inflation, remained above 5 per cent for the second consecutive month at 5.56 per cent. Eggs, vegetables and fruits turned costlier, while inflation moderated in case of cereals and pulses.

Last month, gasoline prices fell 2.7 percent after rebounding 7.3 percent in November. Retail sales rose 5.4 per cent from a year earlier.

While vegetable prices likely dropped moderately last month, a pay revision in July previous year for government employees probably pushed up demand and inflation.

Sales last month were supported by a 1.2 per cent jump in receipts at gardening and building material stores. Consumer spending, which accounts for more than two-thirds of USA economic activity, increased at a 2.2 percent annualized rate in the third quarter.

PHD Chamber President Anil Khaitan said that as the teething problems of GST are nearly over, the growth in industrial output has come with a strong rebound and it looks forward to the growth becoming stronger in the coming quarters.