Providing respite to common man ahead of Diwali, falling food prices pulled down the September retail inflation to 6.46 percent, lowest since the new series of Consumer Price Index was released in January 2012, although experts do not see a rate cut by RBI any time soon.
Although retail inflation, which has been on decline since July, is below the RBI target of 8 percent by January 2015, experts said the central bank is expected to reduce interest in the next fiscal (2015-16) only.
The overall food inflation as measured by CPI fell to 7.67 percent as against 9.35 percent in the previous month and 11.75 percent in September 2013.
The retail inflation was at 7.73 percent in August, revised downward from the earlier estimate of 7.8 percent.
As per the government data released today, the CPI inflation in vegetable basket in September fell to 8.59 percent as against 15.15 percent in the previous month.
Inflation in fruits slowed to 22.4 percent from 24.27 percent in August. Price rise in protein rich items like eggs, fish and meat was slower in September against August.
“…While the RBI has become more proactive in providing liquidity to the banking system, it seems that lowering the policy interest rate will likely take place only in 2015. We expect the RBI to lower the repo rate by 50bp during H1 2015,” said Barclays Research.
Senior Economist with ICRA Aditi Nayar said CPI at a series-low 6.5 percent in September provides some optimism in light of the near-stagnation in industrial output in July- August 2014.
“We expect the RBI’s January 2015 target of restricting CPI inflation below 8 percent to be comfortably achieved. However, the likelihood of a repo rate cut in 2014-15 remains low,” she added.
In its last monetary policy, RBI had maintained status quo on interest rate citing worries on the inflation front despite industry demanding reduction. The next policy will be announced on December 2.
The inflation data released by the Ministry of Statistics and Programme Implementation further revealed that retail inflation was 6.34 percent in urban India and 6.68 percent in rural parts of the country.
The urban and rural inflation was 7.04 percent and 8.27 percent respectively in August.
Deloitte India Senior Director Anis Chakravarty said that while these numbers are encouraging, it is important to see whether this trend continues.
“The RBI will find some comfort in these numbers and will aid in the nominal anchoring that has been set. We do not expect the rates to be revised until this trend of sub 7 percent CPI holds,” he said.
The data for inflation based on Wholesale Price Index will be released tomorrow. The WPI-based inflation in August was at 3.74 percent.
Lately, the Reserve Bank has been considering mainly the CPI-based inflation while deciding on its bi-monthly monetary policy.
RBI is targeting a retail inflation of 8 percent by January 2015 and 6 percent by January 2016.
PTI