<p>India’s retail inflation, as measured by the Consumer Price Index (CPI), and wholesale inflation, as seen in the Wholesale Price Index (WPI), have fallen to record levels, beyond projections of the Reserve Bank of India (RBI) and other agencies. Retail inflation slipped to 1.54% in September, the lowest since June 2017, while wholesale inflation declined to 0.13% on a year-on-year basis, and down from 0.52% in August. For the second time in this fiscal year, the retail inflation rate was below the RBI’s target zone of 2-4%. This fall has been traced to a decline in food prices, including those of vegetables and pulses, despite an increase in the prices of vegetable oil. The consumer food price index fell by over 2%, also accounting for the lower rural inflation in relation to urban inflation.</p>.<p class="bodytext">It should be noted that while retail inflation hit record lows, there was no similar fall in core inflation, which is inflation without taking into consideration the prices of goods such as food items, fuel, and others with volatile prices. Core inflation represents a longer trend – it rose from 4.2% in August to 4.6% in September and has stayed above 4% for eight consecutive months. The spurt in core inflation has been partly on account of the recent increase in gold prices. But the rise is considerable even if gold is excluded from the mix. This should be a matter of concern because it may be indicative of an active long-term trend of inflation. The rise, indeed, should be a factor to be considered for the longer term, but the softening of retail inflation also presents opportunities for the RBI and other policymakers to make useful interventions in the economy. Retail inflation could find still lower levels when the GST cuts come into full force. The September inflation rate has only partially captured the price cuts resulting from the GST restructuring.</p>.<p class="bodytext">Since retail inflation has stayed below the RBI’s medium-term target of 4% for seven straight months, the apex bank is likely to make another cut in interest rates in its December meeting. The RBI said in its last meeting that inflation was likely to moderate further in the current fiscal year because of the GST rate cuts and a favourable outlook on food prices. While the high festival demand in the current month does not give a comprehensive picture of the scenario, it is almost certain that the RBI will prioritise growth over inflation in the coming months.</p>
<p>India’s retail inflation, as measured by the Consumer Price Index (CPI), and wholesale inflation, as seen in the Wholesale Price Index (WPI), have fallen to record levels, beyond projections of the Reserve Bank of India (RBI) and other agencies. Retail inflation slipped to 1.54% in September, the lowest since June 2017, while wholesale inflation declined to 0.13% on a year-on-year basis, and down from 0.52% in August. For the second time in this fiscal year, the retail inflation rate was below the RBI’s target zone of 2-4%. This fall has been traced to a decline in food prices, including those of vegetables and pulses, despite an increase in the prices of vegetable oil. The consumer food price index fell by over 2%, also accounting for the lower rural inflation in relation to urban inflation.</p>.<p class="bodytext">It should be noted that while retail inflation hit record lows, there was no similar fall in core inflation, which is inflation without taking into consideration the prices of goods such as food items, fuel, and others with volatile prices. Core inflation represents a longer trend – it rose from 4.2% in August to 4.6% in September and has stayed above 4% for eight consecutive months. The spurt in core inflation has been partly on account of the recent increase in gold prices. But the rise is considerable even if gold is excluded from the mix. This should be a matter of concern because it may be indicative of an active long-term trend of inflation. The rise, indeed, should be a factor to be considered for the longer term, but the softening of retail inflation also presents opportunities for the RBI and other policymakers to make useful interventions in the economy. Retail inflation could find still lower levels when the GST cuts come into full force. The September inflation rate has only partially captured the price cuts resulting from the GST restructuring.</p>.<p class="bodytext">Since retail inflation has stayed below the RBI’s medium-term target of 4% for seven straight months, the apex bank is likely to make another cut in interest rates in its December meeting. The RBI said in its last meeting that inflation was likely to moderate further in the current fiscal year because of the GST rate cuts and a favourable outlook on food prices. While the high festival demand in the current month does not give a comprehensive picture of the scenario, it is almost certain that the RBI will prioritise growth over inflation in the coming months.</p>
