Retail inflation may hit 4-month low but still above RBI target: Poll

Reuters BENGALURU | Updated on March 09, 2018


India's retail inflation likely eased to a four-month low in February on softening prices for vegetable and other perishable foods, but probably stayed above the Reserve Bank of India’s target, a Reuters poll showed.

Along with recent news that India in late 2017 was the world’s fastest–growing major economy, this may bring some comfort to policymakers in a delicate balancing act between rising price pressure and letting economic activity rip.

The annual increase in the consumer price index , the main measure of inflation in India, likely slipped to 4.80 per cent in February from 5.07 per cent the previous month, according to the poll of 30 economists. The forecast range was 4.36–5.60 per cent. The February inflation data is due at 5:30 PM on Monday, March 12.

If the data matches the consensus, February’s pace will be the lowest since October, and down from a 17-month high in December, but still above the RBI’s 4 per cent medium–term target for a fourth month.

And the small reprieve, if it comes, won’t likely last long. The central bank expects inflation to pick up to 5.1–5.6 per cent in April–September and then ease later on anticipation of for normal rainfall.

Main concerns

The main concern among economists is the government’s expansionary budget. From April, Prime Minister Narendra Modi’s administration plans to step up spending on welfare, particularly in rural areas, and increase the guaranteed price for agricultural produce—called the minimum support price (MSP)—ahead of national elections next year.

“We expect a sharp retreat in inflation in February led by a fall in perishable food prices that earlier forced the inflation upsurge from lows in June 2017,” said Abhishek Upadhyay, economist at ICICI Securities Primary Dealership. “But the big picture is the prospective MSP hikes, which continue to be the elephant in the room as far as the inflation outlook is concerned.”

Annual wholesale price inflation also likely eased to 2.50 per cent in February from 2.84 per cent in January, the poll showed. Separately, the poll showed industrial production likely rose 6.7 per cent in January from a year earlier, less than December’s 7.1 per cent growth.

Output in eight core infrastructure industries, which account for about 40 per cent of overall industrial production, rose 6.7 per cent in January from a year ago. Rupa Rege Nitsure, chief economist at L&T Finance Holding, said that putting aside a few sectors that maintained good growth tracks in January—like cement, refinery products and power generation—“overall growth moment remained flattish”.

Published on March 09, 2018

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