Food inflation, which accounts for about 40% of the inflation basket, came in at 4.19% in December. It stood at 4.67% the previous month.

However, beyond perishable items like vegetables, there was little relief as inflation in food materials such as cereals, milk, and spices increased further to 13.8%, 8.5%, and 20.3%, respectively, the data showed.

“Non-perishables, on the other hand, registered a 29-month high of 8.4%...while perishables being of volatile nature might act as a swing factor in certain months, non-perishables define the underlying trend in food inflation,” economists at QuantEco Research said in a note.

“It is tough to predict price movement in perishable items because even the slightest supply disruption would flare up their prices...” Vivek Kumar, one of the economists, told Quartz.

Even core inflation, which measures price changes excluding food and fuel, paints a concerning picture.

Core inflation remains sticky

Core inflation has remained elevated at around 6% for the past many months due to multiple supply shocks from the Ukraine war, a concern also voiced by most members of RBI’s monetary policy committee.

This represents the non-volatile nature of inflation, which makes it difficult to bring down overall headline inflation. Economists predict core inflation to stay higher through the March 2023 quarter as end consumers continue to bear input costs and the demand for services remains robust.

“...for the next fiscal, there are emerging risks to the inflation outlook next year, particularly in regards to any rise in commodity prices due to the ‘China reopening’ underway and the continued stickiness in core inflation,” Sakshi Gupta, principal economist at HDFC Bank, told Mint.

Within the core basket, essential services like health and education rose to 6.1% and 5.9%, respectively. Even the rise in clothing prices was at 9.2% in December on an annualized basis.

The new CPI data has made a case for the RBI to go ahead with another hike in interest rates in February, smaller than December’s 35-basis-point increase. Policymakers are convinced of potential inflationary risks in case of any further supply-side shocks.

“The correction in industrial input prices and supply chain pressures, if sustained, could help ease pressures on output prices; but the pending pass-through of input costs could keep core inflation firm,” the minutes of RBI’s December policy meeting (pdf) stated.

📬 Sign up for the Daily Brief

Our free, fast, and fun briefing on the global economy, delivered every weekday morning.