Inflation in fruits slowed to 22.4% from 24.27% in August. Price rise in protein rich items like eggs, fish and meat was slower in September against August
Being on the decline since July, retail inflation dropped to 6.46 per cent in September owing to falling prices of fruits and vegetables, thus bringing smiles on the face of the common man in the ongoing festival season. In fact it is the lowest since India started computing Consumer Price Index (CPI) in January 2012.
The retail inflation was at 7.73 per cent in August, revised downward from the earlier estimate of 7.8 per cent. As per the Government data released on Monday, the CPI inflation in vegetable basket in September fell to 8.59 per cent as against 15.15 per cent in the previous month. Inflation in fruits slowed to 22.4 per cent from 24.27 per cent in August. Price rise in protein rich items like eggs, fish and meat was slower in September against August.
“...While the RBI has become more proactive in providing liquidity to the banking system, it seems that lowering the policy interest rate will likely take place only in 2015. We expect the RBI to lower the repo rate by 50bp during H1 2015,” said Barclays Research. Senior Economist with ICRA Aditi Nayar said CPI at a series-low 6.5 per cent in September provides some optimism in light of the near-stagnation in industrial output in July- August 2014.
“We expect the RBI’s January 2015 target of restricting CPI inflation below 8 per cent to be comfortably achieved. However, the likelihood of a repo rate cut in 2014-15 remains low,” she added. In its last monetary policy, RBI had maintained status quo on interest rate citing worries on the inflation front despite industry demanding reduction. The next policy will be announced on December 2.
The inflation data released by the Ministry of Statistics and Programme Implementation further revealed that retail inflation was 6.34 per cent in urban India and 6.68 per cent in rural parts of the country. The urban and rural inflation was 7.04 per cent and 8.27 per cent respectively in August. Deloitte India Senior Director Anis Chakravarty said that while these numbers are encouraging, it is important to see whether this trend continues.
“The RBI will find some comfort in these numbers and will aid in the nominal anchoring that has been set. We do not expect the rates to be revised until this trend of sub 7 per cent CPI holds,” he said. The data for inflation based on Wholesale Price Index will be released on Tuesday. The WPI-based inflation in August was at 3.74 per cent.
lately, the Reserve Bank has been considering mainly the CPI-based inflation while deciding on its bi-monthly monetary policy. RBI is targeting a retail inflation of 8 per cent by January 2015 and 6 per cent by January 2016. CRISIl said that over the next 2 months, headline CPI inflation could ease further due to a base effect from last fiscal, lower crude oil prices, revival of Monsoon and proactive measure by the Government keeping food prices under control, and a stable currency.
For 4 consecutive months CPI inflation has been at or below the RBI’s target of 8 per cent for January 2015. The RBI’s focus has now shifted towards achieving the target of 6% by January 2016, with the central bank stating that “future policy stance will be influenced by RBI’s projections of inflation relative to the medium term objective”.
There are still upside risks to achieving this target, especially as GDP growth begins to recover gradually. Also, the Government and the RBI are currently finalizing the new monetary policy framework to be implemented from April 2015. Therefore, we believe that the RBI will remain on hold for the rest of this fiscal.