This happened because of a sharp fall in food inflation from 9.5 per cent in November to 3.4 per cent in December, the lowest since August 2019. The CPI-based inflation has held a declining trend over the past few months, declining to 6.93 per cent in November from a six-year high of 7.61 per cent in October.
Retail inflation declines to 4.59% in December, back in RBI's comfort range
Inflation in food basket plunged sharply during the month under review, ending at 3.41 per cent, showed government data released on Tuesday. Milk and dairy products saw prices rise 3.98 per cent. Fruit prices grew only 2.68 per cent in December, whereas pulses and associated products got dearer by 15.98 per cent. "Today's CPI print largely reflects normalization of the inflation picture as the bulk of the inflation spike earlier during H2 2020 came in from surging food inflation, even though prices of industrial commodities and energy were largely anchored reflecting weak demand", Siddhartha Sanyal, Chief Economist and Head of Research, Bandhan Bank said. Since then, it has gone as high as 7.61 percent in October. "With global and domestic demand expected to strengthen with the rollout of Covid-19 vaccines, the core-CPI inflation may remain relatively sticky, and display a limited correction going forward", Aditi Nayar, principal economist of Icra, said.More news: Link announces the launch of Wi-Fi 6E routers at CES 2021
The IIP had grown by 2.1 per cent in November 2019. "In view of growth concerns, we expect the RBI to continue its accommodative policy stance and maintain status quo on policy rate in the forthcoming monetary policy review while keeping a close eye on the upcoming Union budget to ascertain the government's fiscal stance", he added.More news: House Democrats set in motion bid to remove Trump from office
Industrial production has been hit due to the COVID-19 pandemic since March past year when IIP contracted by 18.7 per cent in the month.More news: AstraZeneca/Oxford apply for European Union approval of COVID vaccine
According to the Index of Industrial Production (IIP) data, manufacturing sector output shrank by 1.7 per cent in November 2020. "The unevenness and fragility of the current recovery is evident with only 10 out of 23 industry group showing positive growth in November", he pointed out. "Core inflation also fell moderately to 5.66 per cent from 5.84 per cent in the preceding month". "Food prices drove the softening in inflation".