CPI inflation jumps as base effect wears off

Inflation based on the consumer price index (CPI) rose significantly to 5.6% on-year in December compared with 4.9% previous month and 4.6% in December 2020. Wearing out of a favourable base (4.6% in December last year compared with 6.9% previous month) was the key factor bumping up the current inflation reading. This was especially for seen for food inflation, which more than doubled in December 2021 relative to previous month. Non-food inflation moderated slightly relative to previous month.

CPI inflation is expected to rise in the coming few months as the benefit from a high base wears off, especially for food inflation. Persistent growth in cost pressures for producers over the past few months will further make them pass some burden to consumer prices. That said, stabilisation of commodity prices and easing of supply disruptions should help cap further rise in inflation next fiscal. On average, we expect CPI inflation at 5.5% in fiscal 2022 and 5% in fiscal 2023.

Inflation trends in December: highlights

• CPI inflation rose to 5.6% in December compared with 4.9% previous month and 4.6% in December 2020
• Sequentially, CPI grew 0.5% on-month in December, similar to the rate seen in November
• Food inflation rose to 4% on-year compared with 1.9% in November and 3.4% in December 2020
• Fuel¹ inflation moderated to 11% from 13.3% in November, but higher than 2.9% in December 2020
• Core² inflation also moderated to 6% from 6.2% in November
• Urban inflation remained higher than rural. Urban inflation came at 5.8% in December compared with 5.5% in November, while rural inflation jumped sharply to 5.4% in December compared with 4.3% previous month

¹ Refers to fuel and light category
² Refers to CPI, excluding food and beverages and fuel and light