Inflation accelerates to 15-month high of 4.88% in Nov

Jon Howard
December 12, 2017

A sharp spurt in food and fuel prices pushed India's annual retail inflation in November over the RBI's median level of 4 per cent, even as factory output growth in October contracted to 2.2 per cent official data showed on Tuesday.

Inflation has delivered an unwelcome Christmas surprise for households, investors and the Bank of England as figures released today defy the consensus the United Kingdom consumer price index had peaked at 3 per cent.

The committee also said that the Reserve Bank has already firmed up and any increase in food and fuel prices may further harden these expectations.

Rising oil prices saw producer input price inflation pick up to 7.3% in November from 4.8% in October, while output price inflation only edged up to 3% from 2.8%.

CPIH, the ONS's preferred measure of inflation as it includes owner-occupiers' housing costs, was unmoved at 2.8% in November, though the market had expected it to nudge up to 2.9%.

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Sterling spiked back toward the $1.34 mark and United Kingdom 10-year Government bond yields rose a couple of basis points to 1.22 per cent suggesting markets anticipate further interest rate rises. The inflation numbers also exceeded RBI estimates that retail inflation numbers will remain within 4.2 per cent to 4.6 per cent. For vegetables it was 22.48 per cent in November.

The central bank took advantage of an extraordinary period of low inflation, including a slump in food and energy prices, to cut rates by a total of 200 basis points from January 2015 until August this year, when it last cut the repo rate by 25 basis points. The October bi-monthly statement projected inflation to rise and range between 4.2-4.6 per cent in the second half of this year, including the impact of increase in house rent allowance (HRA) by the Centre.

Parker says a portfolio would typically need to hold 60 per cent in risky assets like shares to beat inflation by 3 per cent and this would rise to 100 per cent for investors seeking to outperform by 5 per cent.

In November, the Bank of England raised its key interest rate for the first time in more than a decade from 0.25% to 0.5%. The headline inflation outcomes have evolved broadly in line with projections.

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