Telecom tariff hike to add to pressure

There could be more bad news on the inflation front which saw a five-year high of 7.35% in December. The State Bank of India (SBI) has projected consumer price index-based inflation at between 7.8-8% for January in case the current trends in vegetable prices continues.

The report from SBI said core inflation could rise further on the back of telecom price increase and a larger increase could push headline inflation closer to 8%.

“Specifically, we find evidence that retail food prices vis-à-vis wholesale food prices decline slowly when inflation is declining and rising at a much faster pace when inflation is rising, indicating that inflationary expectations are always entrenched and take time to die down,” Soumya Kanti Ghosh, group chief economic adviser, SBI, who authored the report, said, adding that this did not portend well for the CPI trajectory going ahead. Rise in retail inflation had prompted the Reserve Bank of India to hold interest rates in the December review of monetary policy, despite cutting the growth forecast. The market expects RBI to maintain status quo in the February policy review as inflation is continuing its upward trajectory.