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The Economy Observer: Retail inflation at a 17-month high in December 2017

12-Jan-2018

CPI inflation rose to a 17-month high of 5.2% in December 2017, higher than our/market expectation of 4.9%/5.1%.
Vegetable inflation shot up to a four-year high of 29.1%, while core CPI rose to a 40-month high of 5.1% on account of arise in housing inflation. Inflation in 'core services' remained benign at 3.5%.
IIP surprised on the upside, rising by a sharp 8.4% in November 2017, much higher than our/market expectation of an increase of 2.1%/~4.4%, led by consumer non-durables, capital goods and construction/infra goods.
We expect inflation to inch above 6% in 1QFY19 and peak at ~7% in June 2018 on account of an adverse base effect.However, a high base is likely to pull down CPI inflation to sub-4% in 2HFY19. Thus, we expect the RBI to look through such statistical effects and maintain status quo through 2018.

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