January 12, 2018 / 12:22 PM / 5 months ago

Rising food prices push India's December retail to 17-month high

NEW DELHI (Reuters) - Rising food prices pushed India’s retail inflation to a 17-month high in December, breaching the central bank’s medium-term target for the second straight month, which could intensify pressure for it to raise policy rates in the next few months.

A worker carries sacks of limes at a vegetable market in Mumbai, October 12, 2017. REUTERS/Shailesh Andrade/Files

India’s measure of consumer price inflation, the CPI index, rose 5.21 percent in December from a year earlier, the Ministry of Statistics said on Friday.

Analysts polled by Reuters had predicted December’s consumer inflation rate would climb to 5.10 percent, the highest since July 2016, from 4.88 percent in November.

Annual retail food inflation rose 4.96 percent in December from 4.35 percent in the previous month.

The Reserve Bank of India held its policy rate steady at 6.0 percent last month and said all possibilities were on the table, depending on how price pressures and growth panned out.

The RBI, which has a medium-term inflation target of 4 percent, has raised its inflation estimate to 4.3 percent to 4.7 percent for the six months through March. But some analysts feel inflation could overshoot its estimates.

The RBI holds its next policy review on Feb. 7.

Sunil Sinha, principal economist at India Ratings, said the RBI was unlikely to change its policy stance soon.

A customer buys onions from a stall at a local vegetable market in Mumbai, August 6, 2015. REUTERS/Shailesh Andrade/Files

“If the inflation pressure continues beyond this level, one can expect the central bank to change its policy stance to hawkish,” he said.

Rising inflation amid firm global crude oil prices is a major worry for Prime Minister Narendra Modi ahead of his last full-year budget, due on Feb. 1, as he hopes to win a second term in 2019.

Analysts said any sharp rise in state spending in the budget that fuels inflation could force the central bank to raise rates earlier than expected.

The U.S. central bank is forecasting three rate hikes for 2018. It raised rates three times last year.

While the world’s seventh largest economy is expected to grow at 6.5 percent in the current fiscal year ending in March, a continued rise in inflation from 1.46 percent in June, the lowest on record since 2012, has alarmed policymakers in New Delhi.

Crude prices have rallied, sending Brent crude above $70 a barrel on Thursday for the first time since December 2014, a worry that India imports most of its energy needs.

A worker stacks food packets inside a retail outlet at a shopping mall in Kolkata August 12, 2014. REUTERS/Rupak De Chowdhuri/Files

Despite a cut in taxes, retail petrol prices have risen 5.6 percent and diesel by 9 percent since June in the Indian capital.

Reporting by Manoj Kumar; Editing by Richard Borsuk and Clarence Fernandez

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