Retail inflation jumps to 5.2%, dashes hopes of repo rate cut

High food prices push India's retail inflation to 17-month high of 5.2 per cent

High food prices push India's retail inflation to 17-month high of 5.2 per cent

The benchmark consumer-price index rose 5.21% from a year earlier, the highest since July 2016 and significantly higher than November's 4.88% increase.

Food inflation remained volatile with prices falling in September and firming up from October, as eggs, vegetables, sugar and fruits became relatively more expensive.

The retail inflation for rural India was recorded at 5.27 per cent which was 5.09 for the urban areas.

As a result, in the 12 months of 2017 inflation reached 24.8%, well above the central bank's target for 2017, of between 12% and 17%. The reports likely keep the Federal Reserve on course to raise interest rates at least three times this year.

U.S. energy prices were up sharply previous year compared to 2016, with petrol rising almost 11% and fuel oil up more than 15%.

The acceleration in the CPI inflation supported the RBI view.

The Business Inventories for November, compiled by the Commerce Department, is expected to grow 0.3%, compared to decline of 0.1% in the prior month.

"The 0.3% m/m gain in core consumer prices in December will reinforce expectations of a Fed rate hike in March and supports our view that the Fed will ultimately increase interest rates by a more aggressive 100bp cumulatively this year", said Paul Ashworth, chief USA economist at Capital Economics.

But clothing prices fell for the fourth consecutive month, and airline fares fell 0.5% after a 2.4% drop in November.

Looking at some of the components, the report said that food index increased 1.6% in 2017, while energy index increased 6.9%.

The producer price index for final demand edged down by 0.1% in December after climbing by 0.4% in November. Food prices rose 0.2% after being unchanged for two straight months.

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.

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