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India’s retail inflation eased for the second straight month in February but remained above the 4% medium-term target of the Reserve Bank of India (RBI), strengthening views it will hold rates steady at its April meeting rather than raise them. According to data released by the Central Statistics Office today, while the rural inflation was 4.37%, the urban inflation stood at 4.52%. The annual retail inflation eased for the second straight month in February to 4.44 percent, as food prices fell, government data showed on Monday.
Analysts polled by Reuters had forecast February’s consumer price inflation to ease to 4.80 percent from 5.07 percent in the previous month.
“The downward move in inflation is on the back of seasonal food price reduction. This trend will likely taper off over the next one-two months as the effect of the kharif harvest wanes. Further, adverse base effect will move inflation to its peak of around 5.5-6.0 percent before gliding towards 4.5 percent by March 2019.”
“The RBI will remain cautious. It is important to note that compared to its stated target of 4 percent on a durable basis, inflation is due to remain around 4.5 percent for the major part of FY2019. While growth conditions may not warrant a hike immediately, we expect the RBI to be cautious on any upside surprises to its inflation estimates and remain on a pause.”
“We are not pencilling in a rate hike cycle as our base case as of now. The RBI in 1HFY19 would want to look at how various risks such as states’ HRA impact, monsoons, crude and other commodity prices, MSP increases, Fed rate hike cycle, etc. pan out and evaluate the necessity to shift gears.”
“The upside risks to inflation will emanate from adverse monsoons, increase in MSPs for kharif crops, fiscal slippages at a consolidated level and adverse expenditure quality, implementation of states’ HRA, global growth-led renewed pressure on crude oil and other commodity prices, etc, while downside risks could emanate from a prolonged weak domestic demand.”
“My CPI projection again spot on at 4.4 percent led by a sharp fall in food inflation exactly predicted by me at 3.38 percent. This is led by a sharp correction in vegetable prices and continued disinflation in pulses. What is noteworthy is that this low reading is despite an unfavourable statistical base. This clearly shows that inflation is not a serious risk for India. IIP growth is still very skewed and facilitated by favourable statistical base.”
Industrial production expands at 7.5% for Jan
India’s industrial production registered a strong growth in January clocking 7.5 per cent led by a robust growth in the manufacturing sector which showed a growth of 8.7 per cent, data released by the Central Statistics Office showed.
The index expanded in the month of January compared to a 7.1% growth in December and 8.8% in November.
The expansion was supported by growth in electricity sector which grew at 7.6 per cent. The continued expansion in industrial production has reinforced hopes of a healthy economic growth in the fourth quarter. The GDP grew at 7.2% in the October-December quarter.
Retail inflation cooled to 4.44 per cent in February compared to 5.07 per cent in January. The number is still higher than the RBI’s medium-term target of 4 per cent.
IIP clocked a 25-month-high growth of 8.8% in November, but slowed to 7.1% in December as mining and electricity production declined.
Retail inflation had softened to 5.07% in January on the back of lower food inflation.
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