Winter, Budget reins on rate cut

Inflation tethered to food prices; rate action will rest on winter-crop yield, fiscal stance in Budget

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November inflation numbers were on expected lines at 5.5%. The moderation from October's inflation print of 6.2% is the result of an almost two-percentage point fall in food inflation to 9% with fuel prices continuing to contract and core non-food, non-fuel inflation staying flat at 3.7%. This means that the broad inflation story remains the same. Food is what is keeping it above RBI's target of 4%, and its future trajectory will largely be determined by movement in food prices. What happens to them is largely a function of how the climate rather than economy behaves going forward.