January retail inflation cools to 19-month low

Retail inflation

Backed by cheaper food and fuel prices, India’s retail inflation cooled to 2.05% in January, the lowest in the past 19 months. Core inflation too came down slightly, raising the prospects of another rate cut by the Reserve Bank of India (RBI) in April as a feel-good factor just before general elections.

Food prices at the retail declined (-) 2.17% in January from (-) 2.51% in December reflecting the contracting vegetable and pulse prices by around three percentage points each, government data showed.

Core inflation or non-food, non-oil inflation, which has been sticky for quite sometime, reduced by a small measure to 5.4% from 5.6% in December. Inflation in services too remained high at 6.4% in January.

Fuel inflation stood at 2.2% in January compared to 4.5% in December while housing inflation was marginally down at 5.2% from 5.3% a month ago.

The RBI tracks consumer price inflation for its monetary policy decision. In its previous policy, Governor Shaktikanta Das handed out a 25 basis point cut in the repo rate and also sounded optimistic on the future inflation trajectory.

In doing so, he appeared to have overlooked core inflation, which remained much above the central bank’s forecast. The RBI also did not take into account the volatile global oil prices and the policy statement had just made a passing reference about it.

An RBI survey of consumer confidence, which was released soon after the policy, however, showed households' pessimism about the households' inflation outlook in the next one year period.

“Inflation continues to surprise on the downside. The headline number remains below the target of the central bank. Even as services inflation remains high, it is really the headline reading which is likely to determine how the RBI responds in the next policy. We expect one more 25 bps rate cut by the RBI in the April monetary policy meet,” Tushar Arora, senior economist at HDFC Bank told DH.

The Central bank has cut the consumer inflation forecast to 2.8% up to March 2019 and 3.2-3.4% in the first half of 2019-20.

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January retail inflation cools to 19-month low

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