Higher telecommunications charges, along with a comparatively low base one year ago, likely drove Indian retail inflation to a six-month high in December, a Reuters poll found, keeping alive expectations for an interest rate rise by mid-year.

The Jan. 4-7 survey of 41 economists showed Indian retail inflation (INCPIY=ECI) rose to 5.80% last month from 4.91% in November, spending more than two years above the Reserve Bank of India’s medium-term target of 4.0%.

If realised, it would be the highest since June 2021.

Estimates ranged between 4.70% and 6.30%, including seven respondents who predicted it would be above the RBI’s upper tolerance limit of 6.0%. The report is due to be released on Wednesday at 1200 GMT.

“Headline inflation is likely to shoot back up to the upper end of the target range, as rising telecom tariffs and high energy costs set the stage for a potential tightening of monetary policy,” said Rahul Bajoria, chief India economist at Barclays.

“However, moderating food prices should keep expectations in check.”

The RBI left its repo rate unchanged at 4.0% for a ninth consecutive policy meeting last month, sticking to its focus on economic growth as India still faces challenges from the coronavirus pandemic.

“Now, the RBI will have to address inflation. The core inflation remains very sticky and elevated and it will have to be cognizant about that,” said Upasna Bhardwaj, senior economist at Kotak Mahindra Bank.

A separate Reuters survey forecast the RBI to raise the repo rate to 4.25% some time in the April to June period.

The latest poll also showed industrial output (INIP=ECI) expanded 3.0% in November from a year ago, compared with 3.2% in October. Infrastructure output (ININFR=ECI) – made up of eight main industries and accounting for about 40% of total factory production – slowed to 3.1% year-on-year in November.

Reuters

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