Lower food prices and a slowing in the rate of price rise saw retail inflation hit a one-and-half year low of 2.33 per cent in November as against 3.31 per cent in October. For the fourth straight month, the inflation rate has remained below the Reserve Bank of India’s (RBI) medium-term target of 4 per cent.
What has contributed to the cooling of inflation rates is the fall in oil prices in recent months and the recovering of the rupee, which has strengthened to 70.5 vis-a-vis the dollar after slipping to a record low of 74.39 on October 9. Moreover, two months ago, Brent crude was trading at around $85 per barrel. That price has since eased to below $62 levels.
This comes after the RBI, in its monetary policy committee meeting last week, cut its inflation projection to 2.7-3.2 per cent for October-March 2018-19 from its earlier view of 3.9-4.5 per cent. However, it also forecasts inflation picking up again to 3.8-4.2 per cent in the first half of fiscal 2019-20, with risks tilted to the upside.
The previous low in the retail inflation rate was back in June 2017, when it stood at 1.46 per cent. The fall in inflation rate has led to the hope among economists that the new RBI governor Shaktikanta Das, in his first policy meeting on February 7, will keep the repo rate unchanged at 6.5 per cent if low inflation persists.
Food inflation too fell to a negative 2.61 per cent from a negative 0.86 per cent in October. While slowing food prices will benefit the consumers, it will hurt the farmers at a time when they are up in arms against the Modi government over agrarian distress.
Moreover, India’s industrial output has accelerated to 8.1 per cent in October following higher production in the manufacturing sector, especially of capital goods and consumer durables. It was 4.46 per cent in September and 1.8 per cent during the corresponding period of the previous fiscal.
“The cumulative growth for the period April-October 2018 over the corresponding period of the previous year stands at 5.6 per cent,” the ‘Quick Estimates’ of IIP released by the Ministry of Statistics and Programme Implementation said.