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Two crucial inflation data points released on Monday presented a mixed picture, placing the Reserve Bank of India (RBI) in a difficult position on the policy rate front.
While the Wholesale Price Index-based inflation continued to positively surprise with the August print contracting further to (-) 4.95 per cent, retail inflation, based on the Consumer Price Index, came in a tad higher than market expectations at 3.66 per cent.
Reacting to the two sets of inflation numbers, Finance Minister Arun Jaitley told newspersons that overall inflation continues to moderate and seems to be under control. He, however, admitted that some products saw an increase in prices mainly due to seasonal variations and the monsoon.
Chief Economic Advisor Arvind Subramanian said that the core momentum had decelerated over the last three months and this was an encouraging sign.
All eyes are now on the RBI, whose next monetary policy review is scheduled on September 29, to see how it will react to the latest inflation numbers and the US Fed’s move on interest rates later this week.
On their part, the apex industry chambers today played the deflationary card and urged the RBI to go in for a “deeper” cut in policy rates.
Clearly, the current global deflationary trend in commodity prices has weighed on the WPI inflation, which has remained in negative territory for the tenth straight month to August.
The CPI-based inflation, at 3.66 per cent, was marginally lower than 3.69 per cent in July. Consumer food price index (CFPI) inched up to 2.20 per cent from 2.15 per cent in July.
Food articles have nearly 50 per cent weightage in the CPI basket. While vegetable prices declined 6 per cent in August, pulses prices shot up 25 per cent on a year-on-year basis.
Aditi Nayar, Senior Economist, ICRA, said that CPI inflation came in slightly higher than ICRA’s expectation of 3.5 per cent on account of a stronger than anticipated uptick in the known concern areas of pulses and vegetables.
Nevertheless, the subdued pickup in food inflation in August 2015 relative to the previous month, despite the considerable worsening of monsoon dynamics, as well as the drop in core CPI inflation, are encouraging, she said.
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