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Inflation: Inflation cools but stays above RBI target, industrial growth slows

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NEW DELHI: Inflation based on consumer price index (CPI) for the month of January marginally cooled to 5.07 per cent, government data showed on Monday. CPI or retail inflation, as it is better known, is an indicator of consumer prices and had shot up to a 17-month high of 5.21 per cent in December.

The sobering of inflation rate came on back of fall in prices of vegetables and pulses. As a result, food inflation slipped by over a per cent.

In another set of data released by the government, the industrial production for December grew at a slower pace of 7.1 per cent, compared to 8.4 per cent in November which had brought cheer in the industry as it was a 17-month high. The manufacturing sector outperformed clocking a 8.4 per cent growth on a year-on-year basis.

The January retail inflation came fairly in line with expectations. A Reuters poll of 26 economists had projected it to come at 5.14 per cent.

The rate of inflation however, is still above the RBI’s mid-term target of 4 per cent. In fact in its last monetary policy committee (MPC) meeting, the central bank hiked the inflation projection for the January- March 2019 quarter to 5.1 per cent from 4.7 per cent in the third quarter. RBI governor Urjit Patel while briefing the media had said that the hike comes on the back of high crude oil prices and the increase in budgetary allocation for MSP (Minimum Support Price) of Kharif crops.

The hardening of inflation has forced the RBI to keep the lending rates unchanged. Despite keeping its stance as ‘neutral’, the central bank has raised its concerns. “There is … need for vigilance around the evolving inflation scenario in the coming months,” the RBI has said in a statement last week.

Tushar Arora, Senior Economist, HDFC Bank said, “Retail inflation is likely to hover around the 5 percent mark in the January-March quarter. Thereafter, CPI readings could touch 6 percent by the summer” . He added that “against such a backdrop, it is unlikely that the central bank would consider cutting rates. In fact, if the softening expected in 2H-FY19 does not materialise, the risk would be that of a rate hike somewhere down the line.

Updated: February 12, 2018 — 11:32 am

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