India’s Retail Inflation Peaks in November Amid Surging Food Prices

In November 2023, India witnessed a significant spike in retail inflation, reaching a three-month high of 5.55%, primarily propelled by escalating food prices. This surge, marking a notable increase from October’s 4.87% inflation rate, remained within the Reserve Bank of India’s (RBI) acceptable range of 2-6%. A key driver of this inflationary trend was the steep rise in food prices, which constitute nearly half of the overall consumer price index. Food inflation alone jumped to 8.7% in November from 6.6% in the previous month, underscoring the substantial impact of volatile food costs on the overall inflation scenario.

The pronounced increase in food prices was evident across various categories, with cereals, vegetables, pulses, spices, and fruits all registering significant year-over-year price hikes in November. The most notable rises were seen in the costs of vegetables (17.7%), pulses (20.23%), and spices (21.55%), compared to their prices in the same month last year. These trends align with the RBI’s concerns regarding the unpredictable nature of food prices and their influence on retail inflation.

Despite these challenges, India’s economic performance remained robust, with a remarkable 7.7% growth rate in the first half of the year. This strong economic backdrop, coupled with the elevated food prices, suggests that the RBI might delay any policy easing until the second half of 2024. In response to the inflationary pressures, the Indian government has implemented measures such as export bans on certain commodities like rice, wheat, sugar, and onions since July, when inflation exceeded 7%.

Moreover, the country’s industrial production growth reached a 16-month high of 11.7% in October 2023. This surge was largely attributed to the strong performance of the manufacturing, mining, and electricity sectors. The manufacturing sector’s output alone grew by 10.4% in October, compared to a contraction in the same month the previous year. This growth in industrial production, along with the government’s efforts to contain food inflation, presents a mixed picture of India’s economic landscape, where robust industrial activity coexists with persistent inflationary pressures​​​​​​​​​​.