By Manoj Kumar and Aftab Ahmed
NEW DELHI (Reuters) -India's retail inflation accelerated to a five-month high in December, but the central bank is widely expected to hold on key policy rates next month amid concerns the fast-spreading Omicron variant of COVID may impact economic activities.
Consumer prices, buoyed by rising prices of food and manufactured items, rose 5.59% in December from a year earlier and compared with 4.91% in the previous month, Ministry of Statistics data showed on Wednesday.
Price rises in December moved closer to the upper limit of Reserve Bank of India's (RBI) 2%-6% target, but remained lower than the consensus Reuters poll forecast of 5.80%.
Analysts fear that rising Omicron cases, the unwinding of easy liquidity and the risk of higher global crude oil prices could raise domestic prices in the next few months before easing in the second half of the year.
Garima Kapoor, economist at Elara Capital, Mumbai said supply-side bottlenecks amid the surge in Omicron cases could keep retail inflation elevated over next couple of months.
"We expect MPC (Monetary Policy Committee) to be in wait and watch mode in February policy," she said, citing a resurgence of virus cases and disruptions in economic activity.
Rising prices and job losses amid a fall in income levels during the pandemic have become a major issue for millions of Indians, ahead of elections in five major states next month.
RBI left the benchmark repo rate unchanged at 4.0% for a ninth consecutive meeting last month as economic growth remains a challenge amid rising COVID cases.
Food prices, which contribute to nearly half of the consumer price index (CPI), rose 4.05% year-on-year in December, compared with 1.87% a month before. Prices of edible oil rose nearly one-fourth from a year ago.
Retail fuel prices rose 10.95% in December year-on-year compared to 13.35% in the previous month, the data showed.
Annual core inflation, excluding volatile food and energy prices, was estimated at between 6% and 6.01% in December, according to three economists, compared with 6.08% and 6.2% in the previous month.
The government does not release core inflation numbers.
(Additional reporting by Rama Venkat in BENGALURU; Editing by Andrew Heavens and Bernadette Baum)