Retail inflation inches up to 2.92% in April; keeps rate cut hopes alive

Our Bureau New Delhi | Updated on May 13, 2019 Published on May 13, 2019

Retail inflation rose due to spike in food prices. File Photo   -  Reuters

A surge in vegetable as well as meat and fish prices pushed up the rate of retail inflation further to 2.92 per cent in April, according to government data released on Monday. This is the third month of rise in the rate.

But the number is still below the median rate of 4 per cent, fixed as targeted inflation rate by the Reserve Bank of India. At the same time, industrial growth has contracted for the first time after 21 months. These two facts may prompt the RBI’s Monetary Policy Committee to lower the policy rate by another 25 basis points (100 basis points equal to one per cent) in its next review meeting, scheduled to be held during June 4-6. If it happens, it will be the third successive rate cut.

Research agency Crisil has estimated the rate of retail inflation to touch 4 per cent at the end of this fiscal, against 3.4 per cent during 2018-19. This base case assumes food inflation rising to 3 per cent from an abnormal low of 0.1 per cent, which is good news for the farmers who have suffered due to very low realisation of prices for their produce.

April inflation

Retail inflation, measured by the Consumer Price Index (CPI), did move up in April, but slightly lower than analysts’ projection of 3 per cent. It is well within the RBI range forecast for the first half (April-September) of the current fiscal — 2.9 to 3 per cent. According to Madan Sabnavis, Chief Economist at CARE, the composition of inflation appears to be changing now with core inflation moving downwards and that of food and fuel tending to move upwards. Vegetable inflation had turned positive and will increase in the summer months.

Sabnavis felt the CPI inflation number should be juxtaposed with the very low or negative IIP growth in March. This will give a reason for the RBI to consider another rate cut in June.

“Therefore, a wait and watch stance is more likely even though the MPC has in the past clearly batted for a rate cut based on low growth situation which is very much the scenario today,” he said.

Crisil has given two scenarios for this fiscal. First one is the upside scenario which says if monsoon plays truant, especially in light of an El Nino event, food inflation could surge. Fuel inflation could follow suit if the current uptick in international crude prices persists.

The second option is the downside scenario where inflation could be lower at 3.5 per cent. That would happen if the food inflation remains low for longer, core softens as a result of the lagged impact of economic slack, and government spending remains restrained.



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Published on May 13, 2019
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