December CPI inflation over 5.2%, dashing hopes of RBI rate cut

One year inflation

The CPI, on a sequential basis, dropped 0.29 percent after rising 1.1 percent in the prior month. Over the past six months, core inflation has recorded more benign monthly readings of 0.1 percent or 0.2 percent.

"And, with inflation expected to continue to taper up all the way until the middle of the year, we do not expect any kind of changes in the policy rate until the end of the year", says Tirthankar Patnaik, India Strategist at Mizuho Bank. The central bank's preferred inflation measure, the personal consumption expenditures price index excluding food and energy, has missed its target since May 2012.

Last month's increase in retail sales and the sharp upward revision to November data bolsters economists' expectations of an acceleration in consumer spending in the fourth quarter.

Rising consumer prices provide further support for central bank policymakers' median expectation of three increases this year in the Fed's benchmark interest rate, which now is at a range of between 1.25 percent and 1.5 percent.

Petrol prices declined after a big jump in the previous month, outweighing the rise in winter fuel oil prices as a cold snap hit the Northeastern US, the report said. It increased borrowing costs three times in 2017.

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The Fed raised interest rates by 0.25% last month in its third hike of 2017, which left rates at their highest level since the financial crisis and the fall of Lehman Brothers.

Meanwhile, used auto and truck prices jumped 1.4% in the month, while new vehicle prices gained 0.6%.

Apparel prices, however, fell 0.5 per cent. Mining grew at 1.1 per cent in November while electricity grew at 3.9 per cent.

Whilst more recent comments from New York Fed President Dudley have been hawkish, after he said, "The Fed may have to press harder on the brakes over the next two years", the Dollar has continued falling as actual data in the form of Producer Prices, otherwise known as PPIs or "factory gate" prices out yesterday, fell below estimates in December. In the same month past year, growth was 1.5 percent. It revised November data to show a gain of 0.9 per cent instead of the previously reported 0.8 per cent increase. The statistical impact of an unfavorable base also rose the year-on-year print. The so-called core PPI increased 0.4 percent in November. The consumer durables sector grew 2.5%, recovering from October's 6.89% contraction. The economy grew at a 3.2 percent pace during that period.

Reacting to the data, industry body CII said that November IIP numbers reflected "the economic revival taking place across sectors".

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