Retail inflation rose for the fifth straight month in December due to higher food prices, and was precariously close to the 6% target for January 2016 set by the Reserve Bank of India (RBI).

Retail inflation, or consumer price index (CPI), accelerated to 5.61% in December, after hitting a 14-month high of 5.41% in November 2015.

The CPI was 5% in October 2015 and 4.41% in September 2015.

At its fifth bi-monthly monetary policy statement issued on 1 December last year, the RBI had said the inflation target for January 2016 at 6% was "within reach". 

The biggest reason for retail inflation rising consistently is the increase in food prices.

The consumer food price index (CFPI) rose 6.40% in December 2015, a steep rise from 5% registered in October 2015, when prices of pulses started spiking across India.

Food items, which account for about 46% of the index, have been contributing to retail inflation for the past few months.

Other items in the index include clothing, footwear, health, transport, education and energy.

Rural inflation was 6.32% in December, as against 5.95% in November 2015 and 5.54% in October 2015.

Retail inflation is likely to rise further, primarily due to the implementation of the proposals of the 7th pay panel, leaving little scope for rate cut this year, said research firm Capital Economics in its note.

"Public sector pay increases on this scale may put upward pressure on wage settlements more generally, and feed into higher inflation. Given this, we think the window for further easing following the cumulative 125bp of rate cuts over the past 12 months has now shut. We expect the repo rate to remain on hold at 6.75% throughout 2016," it said.

IIP contracts in November

The Index of Industrial Production (IIP) contracted 3.2% in November 2015 on a year-on-year basis, after rising by 9.8% in October and 3.6% in September.

The cumulative April-November 2015 IIP growth rate was 3.9%, down from 4.8% for the period April-October 2015.

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