US December CPI +1.4% y/y vs +1.3% expected

Retail Inflation Drops To 4.59% In December From 6.93% In November Government

USA consumer prices increased in December, with households paying more for gasoline, though underlying inflation remained tame as the economy battled a raging COVID-19 pandemic, which has weighed on the labor market and the services industry. IIP growth for October has now been revised to 4.2 per cent.

After rising two consecutive months, factory output faltered again, slipping into the negative in November due to contraction in manufacturing production and mining output, data released Tuesday by the National Statistical Office (NSO) showed.

Vegetable prices witnessed a 10.4% deflation in December, compared with inflation of 15.5% inflation in November. The recent rise in commodity prices with pick up in the global economy and depreciating dollar exerts cost push pressures, keeping inflation near 5-6 per cent levels in the near term. On balance, the wage and inflation numbers are fractionally higher and at a pace of +0.4% m/m, the Fed will quickly hit its 2% target.

RBI has slashed its main repo rate by 115 basis points since March 2020 to cushion the shock from the coronavirus crisis, but left rates unchanged last month. While fuel and light inflation increased to 3.2 per cent, transport and communication inflation declined to 9.3 per cent.

While supply-side constraints were the primary reason till now, growing demand as economic recovery firms up may not tame core inflation soon.

"On the other hand, favorable base effect, appreciating Indian rupee and any risk of second or third wave of COVID-led slowdown will be a tailwind for CPI inflation. On a quarterly basis 3QFY21 core inflation peaked to a eight quarter high of 5.75 per cent". "This may give the RBI some room to cut interest rates, but in our view, the central bank may continue its pause at the February's policy and look out for more incoming data", Gupta said.

Overall, consumer inflation settled below 5 per cent for the first time since November 2019, and was within the Reserve Bank of India's (RBI's) target range of 2 to 6 per cent. A recent working paper by Harendra Kumar Behera and Michael Debabrata Patra, stated that there is a steady decline in trend inflation to 4.1-4.3 per cent since 2014.

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