Home >Politics >Policy >Retail inflation falls to 3.63% in November amid cash crunch

New Delhi: India’s retail inflation softened for the fourth consecutive months to 3.63% in November from 4.2% a month ago, as a squeeze in cash availability impacted prices of perishable commodities.

The government announced withdrawing the high-value currencies on 8 November which amounted to 86% of the total value of currency in circulation. The slow pace of supplying the new Rs500 and Rs2,000 banknotes is expected to have led to demand compression and hit small businesses.

According to data released by the Central Statistics Office, food inflation in November softened to 2.11% from 3.32% a month ago.

The Reserve Bank of India (RBI) on 7 December while surprisingly kept its interest rates unchanged holding that crude oil prices may firm up in the coming months which could reverse the gains from softer vegetable prices.

“Volatility in crude prices and the surge in financial market turbulence could put the inflation target for Q4 of 2016-17 at some risk," it said.

RBI is targeting to keep retail inflation under 5% in the fourth quarter and 4% within a band of 2% on either side in the medium term.

Crude oil prices reaching to an 18-month high at $56.44 per barrel on Monday as members of Organization of the Petroleum Exporting Countries (Opec) and oil producers outside the group led by Russia on Saturday agreed to reduce crude oil output almost by 2% of global oil supply.

RBI while drop in vegetable prices may bring down overall retail inflation, downward inflexibility in inflation excluding food and fuel could set a resistance level for future downward movements in the headline inflation print.

“Going forward, base effects are expected to reverse and turn unfavourable in December and February. If the usual winter moderation in food prices does not materialise due to the disruptions, food inflation pressures could re-emerge," it added.

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