November inflation hits 5.55%, driven by vegetables and base effect, in a 3-month high

First surge prices for tomato and onions, and now garlic costs double the usual in several cities—a day after finance minister Nirmala Sitharaman termed retail inflation 'stable'

Representative image of a vegetable vendor (Photo: IANS)
Representative image of a vegetable vendor (Photo: IANS)
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NH Economic Bureau

India has grappled with a surge in retail inflation throughout November 2023, recording a rate of 5.55 per cent — a notable escalation from the preceding month's figure of 4.87 per cent.

Retail inflation has remained above the RBI's medium-term target of 4 per cent for 50 consecutive months now, marking a prolonged period of inflation that exceeds the Reserve Bank's designated threshold.

The reality defied the projections of economists who had anticipated a 5.8 per cent year-on-year increase. This unforeseen inflationary uptick has spurred discussions on factors driving the surge and its potential implications for the nation's economic policies.

10 key highlights of the retail inflation numbers for November are:

Surge in inflation: We are witnessing a notable surge in retail inflation in India, reaching 5.55 per cent in November 2023, compared to the previous month's figure of 4.87 per cent.

Expectations vs reality: However, contrary to economists' predictions of a 5.8 per cent increase, the actual inflation rate of 5.55 per cent has come in slightly lower than anticipated.

Base effect: The November inflationary spike was attributed to a combination of an unfavourable base effect and a rise in prices of essential food items. The base effect in economics refers to the influence of a significant change on reported growth or inflation rates in the base year. In the context of inflation, it arises when comparing the current inflation rate to that of the same period in the previous year. If the previous year had an unusually high inflation rate, a lower rate in the current year might still mean an increase in prices—even though the rate of inflation appears to have decreased due to the elevated base from the prior year. That is partly what is pushing up the figure for food prices in particular, with recent months having seen shocking prices on tomatoes and onions.

Vegetables lead the charge: Among food items, vegetables played a significant role in the inflationary trend, with a 5.0 per cent month-on-month increase, driven by a substantial 48 per cent surge in onion prices and a 41 per cent rise in tomato prices. The supply of these popular 'basic' vegetables has been affected due to crop damage amid extreme weather events in various key areas both in the hills and the plains.

Now, just as demand and use rise in the winter months, garlic prices are reported to be almost twice the usual in key cities, going up to Rs 400 a kilogram.

Overall food inflation also soaring: Food inflation overall, as per the Consumer Price Index (CPI), has climbed to 8.70 per cent in November from 6.61 per cent in October, highlighting the impact of rising food prices on overall inflation in turn. Suppressing the export of more shelf-stable produce such as rice and wheat (products), as well as a cap on sugar have been part of the government.

Core inflation moderates: Excluding food and fuel, core inflation has actually decreased to 4.1 per cent in November though, aligning with the Reserve Bank of India's (RBI) target rate. This suggests that agricultural (and farming and retail policies) as well as food- and health-related welfare schemes may be in the spotlight going forward, due to their disproportionate effect on household expenditures in the current scenario.

Policy rate outlook: Given the lower-than-expected overall inflation, however, analysts suggest that current policy rates are appropriate, anticipating no further tightening unless a durable shock disrupts the inflation trajectory.

Future rate cut projection: Expectations do lean towards a shallow rate cut cycle of around 50-75 basis points, commencing in the August 2024 meeting, as per projections by economists.


RBI's concerns: The Monetary Policy Committee (MPC) retained the policy repo rate at 6.5 per cent, but expressed concern about recurring food price shocks impeding the ongoing disinflation process.

Upcoming events: Eyes are now peeled for the December inflation data, scheduled for release on 12 January. The figures may be crucial ahead of the Interim Budget for 2024–25, to be announced on 1 February, with an MPC meeting scheduled for 6–8 February. The December figures will also provide insights into the trajectory of inflation as India navigates its economic landscape.

As India grapples with these unexpected economic shifts, the lower-than-expected inflation figures in November call for a nuanced perspective on the nation's financial landscape. Currently, cautious optimism prevails, with a call for a steady policy course unless met with a substantial shock.

In navigating these economic uncertainties, the resilience of policy frameworks and adaptability to evolving circumstances will remain pivotal for sustaining a stable and robust financial landscape in the months ahead.

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