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ICICIdirect Research Posted on 02:49pm 16-Dec-2020

Monthly Inflation: Food prices drive inflation lower...

• CPI Inflation fell sharply lower to 6.93% in November 2020 compared to 7.61% in October. The reading in November was lowest in the last three months indicating the headline print has peaked in October and is now trending down

• The decline in inflation was largely driven by food inflation. Food inflation was down to 8.76% in November against 10.09% in October. Almost all components except oil & fats and non-alcoholic beverages saw a decline in growth in inflation

• Food inflation seems to have peaked out and is likely to trend lower due to a decline in retail prices of vegetables and a favourable base effect. Vegetable prices inflation declined to 15.63% in November compared to 22.08% in October

• Core inflation was largely flat at 5.80% in November compared to 5.75% in October. Core inflation remained flat with divergent trends seen across different components. Going forward, rise in crude prices, elevated input cost pressures, reflecting in wholesale prices could eventually impact output prices and would need to be monitored

•  Overall, the reading was better than market expectations. However, sticky core inflation would remain a point of concern. Minutes to be released later this week will be looked at closely to understand MPC members’ views on broad based inflationary concerns, excess liquidity and supporting growth

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