Shoppers buy groceries at the upscale Lulu Hypermarket at Lulu International Shopping Mall in Kerala, India, May 25, 2022.
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India’s consumer inflation rate rose to 0.71% in November, accelerating from the previous month’s record low of 0.25%.
The main inflation rate was in line with expectations for a 0.70% rise in the consumer price index, according to a Reuters poll of economists’ median forecasts.
The government said in a statement on Friday that the rise in consumer inflation was due to higher prices of vegetables, eggs, meat and fish, spices and fuel, adding that fuel and utility prices rose by 2.32% in November compared to 1.98% in October.
Inflation also rose in both urban and rural areas.
A low inflation environment and a slowdown in some key economic indicators prompted India’s central bank to cut interest rates by 25 basis points last week, potentially boosting the country’s already strong economic growth.
The Reserve Bank of India forecasts consumer inflation at 2% for the fiscal year ending March 2026, down from its October forecast of 2.6%. It expects CPI to rise to 2.9% in the three months to March, rising to 4.0% in the quarter ending September 2026.
“The balance between growth and inflation, particularly the favorable outlook for both headline and core inflation, continues to provide policy space to support growth momentum,” the central bank said after last week’s monetary policy meeting.
RBI Governor Sanjay Malhotra said the low inflation outlook will enable the central bank to “continue to support growth”, adding that the central bank will “continue to aggressively meet the productive requirements of the economy”.
Experts are divided on whether the 25 basis point rate cut will be the end of this cycle of easing, or whether the central bank may ease further in light of Malhotra’s “dovish” signals.
HSBC Research said in a note last week after the monetary policy announcement: “We believe that future slowing growth, a prolonged period of low inflation and fiscal austerity may mean that growth-supportive monetary policy may be needed as early as 2026.”
In August, the United States imposed an additional 25% tariff on imports from India, bringing the total tariff to up to 50%, one of the highest ever imposed by Washington on a trading partner, with textiles, gems, jewelry, and seafood being hit the hardest.
Exports to the United States account for only about 2% of India’s gross domestic product (GDP), but a prolonged slump in these labor-intensive sectors could lead to job losses and put pressure on overall growth.
To cushion the blow, New Delhi streamlined its goods and services tax system, lowering taxes on several items on September 22 to stimulate domestic demand ahead of the month-long festive season. Tax cuts lowered the prices of consumer goods, automobiles, and agricultural products, leading to increased consumption.
While consumption recovered, exports to the United States, India’s main trading partner, fell for the second straight month in October, falling 8.5% year-on-year to $6.3 billion. Overall, overseas shipments in October also decreased by 11.8% to $34.38 billion.
In recent days, the Indian rupee has hit a record low against the dollar, trading below 90 rupees to the dollar on Friday, as exports fall with no deal in sight between New Delhi and Washington.
