Rising food and vegetable prices have taken retail inflation to its highest level in over 5 years. The consumer price index-based inflation has risen sharply in December to hit 7.35 percent.
A CNBC-TV18 poll had estimated the December retail inflation number in the range of 6.2 and 6.9 percent.
The retail inflation jumped to a 5-year high as the consumer food prices accelerated to 14.1 percent from 10.01 percent in November. It is noteworthy that food inflation comprises 40 percent of the CPI basket.
Food inflation may come down from the current level of 14 percent in January and February because of onion prices dropping, but it is unlikely to decline sharply. Global Food and Agriculture Organization (FAO) index is also at a 5-year high and global pork and meat prices are also at about 5-year highs, which will continue to impact the inflation number.
Further, the core inflation is also higher than what the market expected. It has gone up to 3.8 percent because of hike in telecom prices, which won't be reversed. Medicine prices, too, increased in December. Railways too hiked fares, while cement and steel prices, too, have gone up.
According to economists, if the headline inflation is going to remain between 6-6.5 percent, then the RBI is unlikely to cut the rate in February policy. In fact, most economists believe that until August, it is difficult to expect a rate cut.