Dips to 6.46% in Sept, but EMIS may stay high

CPI lowest since 2012, RBI may wait before taking a call on interest rates

NEW DELHI: India’s retail inflation slumped to a nearly three-year low of 6.46% in September, reinforcing the argument for lowering interest rates, although the central bank may prefer a status quo for a few more months.

The fall in global crude oil prices to below $90 a barrel will likely lead to price cuts in diesel and petrol, but patchy monsoon this summer could keep vegetable and food prices high.

A status quo on interest rates would imply your EMIS are unlikely to fall anytime soon even as high prices, despite recent moderation in inflation rates, continue to eat away large chunks of household incomes.

Ahead of the festival season, high loan rates could influence people’s decision to buy houses, cars and other consumer goods that are mostly bought through loans.

The more than one percentage point drop in retail inflation rates over August’s 7.73%, should bring cheer to the NDA government that rode to a landslide election victory promising to bring down prices of essentials as part of its poll pledge to usher in “Aachen din”.

It was also the lowest since January 2012, the month since the government launched a new price series with revised weights to various basket of goods.

The time to open the bubbly, however, may be still some months away as part of the fall in retail inflation, is also because of a high base effect — a statistical phenomenon that magnifies small changes, although the real fall may not be very large.

Last month, Reserve Bank of India (RBI) governor Raghuram Rajan kept lending rates unchanged, withstanding mounting pressure from industry leaders and belying the government’s hopes that he would lower borrowing costs to aid an incipient economic recovery.

“The RBI will find some comfort in these numbers,” said global consultancy Deloitte India senior director Anis Chakravarty. But “it’s important to see whether this trend continues,” he added.

Petrol and diesel prices could come down further as early this week, aided by plunging crude oil prices that touched $88 a barrel for the Indian crude basket.

India imports two-thirds of its energy need, making oil prices a key factor for inflation.

Lower oil prices will also help the Narendra Modi-led BJP government deliver quickly on its electoral promises to cool inflation and revive the economy.