A sticky retail inflation could weigh in on the RBI’s policy action in the upcoming monetary policy review on April 1, C Rangarajan, Chairman of the Prime Minister’s Economic Advisory Council (PMEAC) has said.

Although the direction in which prices are moving is encouraging, the retail inflation is still high, Rangarajan said on the sidelines of an industry event here.

"An 8 per cent retail inflation rate is still very high," he said ahead of the release of official data for WPI inflation for February.

Consumer price inflation (CPI) index–based inflation slowed to 8.1 per cent in February—the lowest in more than two years—from 8.79 per cent in January as food costs eased.

Any further easing of inflation will give greater room for monetary authorities in their policy action, he said.

AFTER WPI DATA RELEASE

It is an encouraging sign that both WPI and CPI are showing a downward trend, he told Business Line after official data for WPI for February was released on Friday.

He however declined to comment on which way the RBI is likely to move on April 1 in light of the latest softening inflation prints.

Rangarajan expressed hope that the RBI will take a look at behaviour of wholesale price index-based inflation, which hit a nine month low of 4.68 per cent for February.

While the headline WPI inflation has shown a softening trend, the core inflation has inched up to 3.2 per cent in February, a 40 basis point increase over the level of 2.8 percent in December.

RBI is likely to be more guided by the retail inflation, which seems to have now emerged as the new monetary policy anchor for the central bank.

RBI Governor Raghuram Rajan had on February 23 said that quelling inflation was crucial for attaining faster growth over the long term.

Rajan has gone for three increases in policy rates since he assumed charge at the helm of the central bank in September last year.

srivats.kr@thehindu.co.in

(This article was published on March 14, 2014)
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