Re­tail In­fla­tion Cools to 3.17% in Jan­uary

The Economic Times - - Economy: Macro, Micro & More - Our Bureau

New Delhi: Re­tail in­fla­tion mod­er­ated to 3.17% in Jan­uary, the low­est since In­dia started putting out con­sumer in­fla­tion num­bers in Jan­uary 2012.

The de­cline was led by a marked fall in food in­fla­tion, data re­leased by the Cen­tral Statis­tics Of­fice showed on Mon­day. How­ever, the closely watched core in­fla­tion rose fur­ther, sug­gest­ing that a de­cline in in­fla­tion is not likely to fetch a rate cut.

The Re­serve Bank of In­dia (RBI) last week de­cided not to cut in­ter­est rates while chang­ing its mon­e­tary pol­icy stance to ‘neu­tral’ from ‘ac­com­moda­tive’ in keep­ing with the 4% medium term in­fla­tion tar­get.

The in­fla­tion read­ing is not likely to change the cen­tral bank’s view.

RBI’s de­ci­sion “could very well mark the end of the cur­rent rate cut cy­cle, which be­gan in Jan­uary 2015 – at least in the near term. The shift re­flects the cen­tral bank’s de­ci­sion to ex­ert cau­tion on the in­fla­tion front in its jour­ney to­wards the medium-term in­fla­tion tar­get,” rat­ings agency Crisil said in a note.

Food in­fla­tion fell to 0.53% in Jan­uary com­pared with 1.37% in De­cem­ber. Con­sumer in­fla­tion in De­cem­ber was 3.41%.

Core CPI in­fla­tion, excluding food & bev­er­ages and fuel & light, rose to 5.1% in Jan­uary 2017 from 4.9% in De­cem­ber 2016, sug­gest­ing stick­i­ness in prices. Most ex­perts ex­pect con­sumer in­fla­tion to inch up go­ing ahead as base ef­fect of high in­fla­tion last year be­gins to wane.

“A re­ver­sal in the base ef­fect and the sea­sonal rise in prices of per­ish­ables are ex­pected to push up the next two read­ings of CPI in­fla­tion. We con­tinue to ex­pect March 2017 in­fla­tion to ex­ceed 4.5%,” said Aditi Na­yar, prin­ci­pal econ­o­mist at ICRA.

The RBI has a 5% in­fla­tion tar­get for March 2017. “The prices of non­food items will con­tinue to re­main high and the base ef­fect is wear­ing out. So there will be a ten­dency of prices to go up,” said Madan Sab­navis, chief econ­o­mist at Care Rat­ings.

Many banks have cut in­ter­est rates in the last month fol­low­ing a surge in de­posits due to de­mon­eti­sa­tion, trig­ger­ing hope that con­sump­tion and housing would get a boost. In­dus­trial pro­duc­tion fell 0.4% in De­cem­ber and GDP growth is fore­cast to slow to 6.5%-6.75% in FY17 from 7.9% in the pre­vi­ous fis­cal.

The de­cline in food in­fla­tion was largely driven by the neg­a­tive 15.62% in­fla­tion in the case of veg­eta­bles. The lower 1.34% in­fla­tion in pulses also helped re­duce in­fla­tion.

Sugar and con­fec­tionery in­fla­tion rose 18.69% while ce­re­als in­fla­tion was 4.89%. Non-food com­po­nents showed higher price in­creases. Cloth­ing and footwear in­fla­tion was 4.71% and fuel in­fla­tion was 3.42%. In­fla­tion in the mis­cel­la­neous cat­e­gory, largely rep­re­sent­ing ser­vices, was 5.5% in Jan­uary. Ed­u­ca­tion in­fla­tion was 6.74% while per­sonal care and ef­fects was 6.44%. CPI data showed that annual re­tail in­fla­tion for ru­ral In­dia was 3.36% while that for the ur­ban cen­tres was 2.9%.

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