Urban housing inflation rose to 4.5% year-on-year in December 2022, as compared to 3.6% in the same period a year ago and 3.2% in December 2020. The rising home prices and rentals in the big cities in India can pose a new challenge to the country‘s central bank in its fight against inflation.
Housing rentals and ancillary costs have a 10.07% weightage in India’s consumer price inflation basket and are near 3-year highs, posing a new worry for the Reserve Bank of India, which had to contend with rising food prices for most of last year.
A senior official aware of the thinking of the Reserve Bank of India (RBI) said that housing has turned “sticky”, and is being watched closely for indications of second-order effects.
Data from the Ministry of Statistics and Programme Implementation showed that Urban housing inflation rose to 4.5% year-on-year in December 2022, as compared to 3.6% in the same period a year ago and 3.2% in December 2020.
Although the index eased slightly in November and December from 4.5% in October, it remains close to its highest levels since 2019.
India’s retail inflation fell in December to 5.7%, within the RBI’s comfort zone of 2%-6% for a second straight month after staying above the upper end for the first 10 months of last year.
In the top seven cities, on average rentals rose 20%-25% in 2022 from pre-pandemic levels, with some of the more popular housing societies recording a jump of more than 30%, real estate consultancy firm Anarock said.
Analysts do not expect a slowdown soon. According to them, housing prices will rise steadily in the next few years, roughly in line with overall economic growth, a Reuters poll of property experts last month showed.
Analysts said rising house prices would also feed into higher demand for services like electricity, etc., ultimately working their way into the overall inflation basket.