KEY POINTS:
- India's inflation rate Y/Y increased to 0.71% vs 0.70% expected in November
- The prior release saw inflation falling to a record low of 0.25%
- The RBI's inflation target is 4% with a +/-2% tolerance band
- Inflation remains far below the central bank's target
INFLATION REPORT:
India's inflation rate increased to 0.71% in November after falling to 0.25% in October. The Ministry of Statistics and Programme Implementation noted that the increase in headline inflation and food inflation during the month of November was mainly attributed to increase in inflation of Vegetables, Egg, Meat and fish, Spices and Fuel and light.
Food makes up the largest share of India's Consumer Price Index (CPI) basket (typically around 46%). This means that swings in food inflation influence significantly overall inflation. A government review might lower slightly the weight in the upcoming revision in January 2026.
MARKET REACTION:
The INR strengthened a bit following the release but quickly gave back the gains and extended the losses against the US dollar as the USD/INR pair continues to push into new record highs.
Next week, we have the US NFP and CPI reports. Right now, the market is leaning on the dovish side for the Fed, so a surprisingly strong employment report should trigger a hawkish repricing and give the US dollar a boost.
The big picture trend remains heavily skewed to the upside and probably only a major positive breakthrough on the US-India trade front could give the Indian Rupee a strong short-term boost.
