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Home » IANS » Low fuel cost keeps inflation under RBI limit, more cuts expected (Roundup)

Low fuel cost keeps inflation under RBI limit, more cuts expected (Roundup)

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New Delhi, Oct 14 (IANS) Despite a rise in food prices, especially those of vegetables like onions, two key macro-economic gauges showed that inflation remained within Reserve Bank of India’s tolerance limit, signalling the possibility of more lending rate cuts.

However, the two key indicators — Wholesale Price Index and Consumer Price Index — released on Monday, showed divergent trends.

The WPI showed a deceleration to 0.33 per cent in September from 1.08 per cent in August. This was the lowest monthly level since July 2016.

At broad level, the decline in WPI inflation was driven by the deflation in fuel and power and manufactured products. On the other hand, CPI-based inflation rose to 3.99 per cent from 3.28 per cent in August, to hit its highest level in 14 months.

The RBI has set a medium-term target for CPI inflation of 4 per cent within a band of “+/- 2 per cent”, while supporting growth. In its last monetary policy committee meet, the RBI had reduced its key lending rate for a record 5th time in a row.

In both the gauges, fuel and power segments showed a decelerating trend, while retail food prices rose on the back of expensive fruits and vegetables, coarse cereals, and pulses.

In terms of CPI inflation, meat and fish, vegetables and pulses’ prices jumped to 10.3 per cent, 15.4 per cent and 8.4 per cent respectively in September 2019.

Overall, vegetables and pulses contributed 76.4 per cent of the increase in retail inflation in September over August 2019. Accordingly, data furnished by the National Statistical Office (NSO), showed the Consumer Food Price Index (CFPI) inflated to 5.11 per cent during the month under review from an expansion of 2.99 per cent in August 2019 and 0.51 per cent rise reported for the corresponding period of last year.

The “Fuel and Light” category under CPI stood at (-) 2.18 per cent.

In the WPI data furnished by the Ministry of Commerce and Industry, the expenses on food items increased at a slower rate of 7.47 per cent from 7.67 per cent.

However, the cost of fuel and power, which commands 13.15 per cent weightage, deflated by 7.05 per cent from a decline of 4 per cent.

Expenses on manufactured products registered a decline of (-) 0.42 per cent.

“The retail inflation which is the barometer of the cost of living for the common man has moved up close to the RBI’s target ceiling rate of 4 per cent. It is mainly the prices of vegetables and pulses that have pushed the rate higher. With a good monsoon having come to a close, its moderating impact may be felt of the price level due to improved supply of produce,” said Joseph Thomas, Head Research- Emkay Wealth Management.

“At this juncture, this may not be of much consequence to the official accommodative policy. A persistence of prices at higher levels beyond the ameliorating influence of the rains may alone would invite a policy shift to neutrality.”

India Ratings & Research’s Principal Economist Sunil Kumar Sinha said: “Reflection of higher inflation in select food items has now begun to show in retail inflation… Food inflation would continue to rise at least till March 2020 mainly due to base effect.”

“Core inflation for September 2019 is at a 26 month low. Given the ongoing slowdown in the economy and retail inflation remaining well within the target range of the RBI, India Ratings and Research believes RBI to continue with accommodative policy and expect further rate cut in the policy review of December 2019.”

Conversely, ICRA’S Principal Economist Aditi Nayar told IANS: “The uptick in the CPI inflation was at odds with the further decline in the WPI inflation, driven by the divergent composition of these two indices.”

“In our view, even though the sharp rise in the headline CPI inflation was driven by food items, it has moderately increased the likelihood of a pause in the next MPC review.”



(This story has not been edited by Newsd staff and is auto-generated from a syndicated feed.)
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