Improving economy: Retail inflation hits 6-month low, IIP rises after a quarter

Economists expect the RBI’s policy stance to remain accommodative in June.

By: ENS Economic Bureau | New Delhi | Published: April 13, 2016 1:59 am
inflation, Reserve Bank of India, RBI, Wholesale Price Index, WPI, Arun Jaitley, business news, india news, news Retail inflation in March fell to a six-month low of 4.83 per cent on account of cheaper food articles such as vegetables and pulses. (Reuters)

Retail inflation moderated to 4.83 per cent in March, its lowest since September last year, as food inflation eased a tad, while industrial production rose 2 per cent in February after three months of contraction, official data released on Tuesday showed.

Retail inflation in March fell to a six-month low of 4.83 per cent on account of cheaper food articles such as vegetables and pulses. The retail inflation, measured on Consumer Price Index (CPI), in February was revised upwards to 5.26 per cent from 5.18.

Consumer inflation was seen below this level at 4.41 per cent in September 2015. Food inflation for March too softened at 5.21 per cent, showed the data released by the Ministry of Statistics and Programme Implementation (MoSPI). In February, food inflation was at 5.30 per cent.

The rate of price rise in vegetables was at 0.54 per cent, oils and fats 4.85 per cent, milk and products 3.33 per cent, while fruit prices deflated further at (-)1.10 per cent in March.

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Pulses too turned cheaper, as the inflation print came in at 34.15 per cent during the month.

Given that the weather office has forecast above-normal monsoon showers this year — at 106 per cent of the benchmark average — after two straight years of deficient rains, analysts reckon food inflation is unlikely to shoot up in the current fiscal.

This will provide more leeway to the central bank to focus on growth concerns, they said, adding that the latest rise in industrial is too modest to suggest a turnaround in the economic output.

“Capital goods production has been negative for the cumulative period, thus indicating low investment activity. Consumer goods and infra sector have been relatively better performing which is due to some spending from households and investment by the government,” said Aditi Nayar, senior economist at ICRA.

Capital goods output dropped 9.8 per cent in February from a year before and recorded a 1.4 per cent contraction in the April-February period. Consumer goods barely rose in February, at 0.8 per cent, while it rose just 3.2 per cent in the April-February period, even on a favourable base.

Some economists expect a 25 basis point cut in the benchmark lending rates as early as June. “The momentum (in inflation) is looking lower. The core inflation is lower with 24 bps month-on-month decline. Although we expect some of the food price momentum to pick up in coming two-three months, outlook for monsoon being favourable should be adequate to offset interim price pressure on food,” said Shubhada Rao, chief economist at Yes Bank.

“Overall inflation trajectory appears to be well within the RBI’s indicative target for March, and as such, we expect a 25 bps rate cut as early as June,” she said.

Earlier this month, the RBI cut the repo rate by 25 basis points. However, some of the challenges still remain. Fuel inflation may rise as the deflationary impact of lower global oil prices continues to reverse. FE

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