Retail inflation hits historic low, factory output contracts
LOWER EMIS? Pressure grows on RBI to cut interest rates
Retail inflation eased to a record in June and factory output growth slowed sharply in May, ratcheting up pressure on the Reserve Bank of India (RBI) to cut interest rates.
Chief economic adviser Arvind Subramanian immediately and implicitly called for an easing of monetary policy.
Inflation as measured by the Consumer Price Index slowed to 1.54% in June, from 2.18% in May, data released by the government on Wednesday showed. The Index of Industrial Production (IIP) rose 1.7% in May, compared with 3.1% in the previous month.
The latest data was released three weeks before the RBI’s monetary policy committee under governor Urjit Patel meets to review policy, and makes a rate cut more likely.
“Clearly, this low number (CPI) and what it implies about underlying price pressures—as well as the latest IIP data just released—is something that, I am sure, all policy makers will reflect upon very, very carefully,” Subramanian said in a statement, implicitly directed at RBI.
Subramanian argued that the low and “heartening number” is consistent with the ministry’s analysis of a paradigm shift in the inflationary process to low levels.
“A shift that I think has been missed by all reflected in the large, one-sided, and systematic inflation forecast errors that have been made,” he said.
Consumer price inflation is at IIP Consumer durables its lowest since the country started releasing retail inflation data in January 2012 based on a combined CPI index for rural and urban consumers. Industrial production growth, which had shown a sudden jump in March, subsequently eased for three consecutive months, according to the Central Statistical Office.
A sharp fall in prices of vegetables and pulses aided the slowing of retail price inflation. A bumper crop has lowered the prices of farm produce, prompting farmers across the country demanding CPI CPI-food more remunerative prices.
RBI, in its last monetary policy review on June 7, kept key interest rates unchanged. It has maintained that it will wait and watch if inflation continues to hold the falling trend.
“We think RBI will maintain their neutral stance even while potentially cutting the repo rate by 25 basis points on August 2,” wrote Kaushik Das, India chief economist at Deutsche Bank, in a note to clients on Wednesday.