Consumer Price Index (CPI) data for November 2021 has been released showing retail price inflation is at a three-month high of 4.9%.

While high, it sits well within the Reserve Bank of India’s 2-6% target for the fifth consecutive month. This increase came despite cuts in gasoline and diesel taxes by state and central governments. A major cause for concern was that core inflation was 6.2% in November 2021. Similarly, wholesale price inflation hit a new twelve-year high of 14.23% in November, mainly due to soaring primary food inflation and also rising fuel and electricity prices, as well as oil and gas prices.

“November CPI inflation at 4.91%, lower than most estimates, but core inflation above 6% is cause for concern. Retail price inflation edged up slightly over the past three months, but remained below 5 percent. The increase in inflation was mainly due to food and vegetables for the non-seasonal rains. Cooling food and crude prices are expected to lower inflation in the coming months. Inflation may be on an upward curve, but well below the central bank’s range, which will help keep the current interest rate regime low for at least 1 to 2 quarters, unless it is there is a sharp rise in the CPI, ”noted Nish Bhatt, Founder and CEO, Millwood Kane International.

Experts believe that even though the CPI inflation level at 4.91% is within the central bank’s target range, it is still in the upper part of the band and has moved higher for the second consecutive month.

“Fuel and transportation costs remained the main components that pushed the level higher in this reading. These categories put pressure on the costs of various inputs. However, the extent to which increased costs are passed on to consumers will depend on the strength of demand in the respective product categories. While not a concern at this time, high price levels will hamper consumers when demand levels improve. Given the high inflation expectations, the RBI will monitor the level of inflation and we hope that interest rates remain subdued as capital intensive sectors like real estate are heavily influenced by the costs of credit at the level. consumers and developers, ”said Vivek Rathi, director of research. , Knight Frank India.

Some experts believe that core inflation will remain high but that things will stabilize over the next few months. “Overall, while headline inflation (a measure of total inflation within an economy) was lower than expected, this does not change material. We expect it to reach 6% by January 2022. Core inflation should however remain at 6%. As a result, the explicit normalization of monetary policy will likely begin on February 22, with a 15 basis point hike in the repo rate, ”said Nikhil Gupta, chief economist at Motilal Oswal Financial Services Ltd.

As for the WPI figures, which hit a record high of 14.23 percent in November, the increase was mainly caused by rising prices for manufactured and food products. Although experts estimate it will be between 11 and 12 percent over the next few months, the gap between inflation based on retail and wholesale prices has widened in recent months. Interestingly, WPI inflation has remained in double digits for the past several consecutive months, while headline retail sales inflation hovers around 5 percent and within the central bank’s target. 2 to 6 percent.

There are concerns that despite falling global crude oil prices and falling fuel prices, companies are trying to pass the rising costs on to consumers because there has been an increase in domestic demand. A Motilal Oswal report said the WPI numbers were 11.8 percent higher than their forecast year-over-year and the Bloomberg survey by 11.98 percent year-on-year. The report says that with this, WPI inflation from April to November 21 was 12.2% yoy, compared to 0.2% yoy deflation from April to November 2020. L WPI inflation in “primary articles” hit a nearly two-year high of 10.3% yoy compared to 5.2% yoy a month ago. The report observes that within primary items, food item inflation soared to 4.9% year-on-year on November 21 after three consecutive months of deflation, which drove headline WPI food inflation to 6.7% year-on-year in November 21, compared to 3.1%. YoY in October ’21. The report says manufactured food inflation fell to 10.3 percent year-on-year in November 2021 from 12.7 percent year-on-year in October 2021.

The Motilal Oswal report mentions that WPI Fuel and Electricity inflation continued to rise and stood at 39.8% year-on-year in November 2021 compared to 37.2% year-on-year in October 2021. WPI inflation in “manufactures” was however slightly lower at 11.9% yoy in November 21 compared to 12% yoy in October 21. On the other hand, the report observes that inflation was below. Underlying WPI (non-food manufactures) also rose to 12.2 percent year-on-year in November.

Experts at Motilal Oswal expect reverse repo rates to rise by 15 basis points at the next monetary policy meeting in February 2022.