MONEY

Surging home prices, high rentals risk derailing RBI’s inflation battle

Rising home prices and rentals in large cities could pose a new challenge to the country’s central bank in its fight against inflation, even though headline consumer price rises have likely peaked, analysts warn. 

Housing rentals and ancillary costs have a 10.07 per cent weightage in India’s Consumer Price Index-based inflation basket and are near three-year highs, posing a fresh worry for the central bank that had to contend with rising food prices for most of last year. 

Housing has turned sticky and is being watched closely for indications of second-order effects, a senior official aware of the Reserve Bank of India’s (RBI) thinking has said. 

Urban housing inflation rose to 4.47 per cent year on year in December 2022 versus 3.61 per cent in the same period a year ago and 3.21 per cent in December 2020, data from the Ministry of Statistics and Programme Implementation shows. 

Though the index eased slightly in November and December 2022 from 4.58 per cent in October 2022, it remains close to its highest levels since 2019. 

India’s retail inflation fell to 5.72 per cent in December 2022, within the RBI’s comfort zone of 2-6 per cent for a second straight month after staying above the upper end for the first 10 months of last year. 

However, core inflation, which typically excludes volatile food and fuel prices, has remained close to 6 per cent. 

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