CPI: Retail Inflation Falls For The First Time In Seven Months

Retail inflation eased for the first time in seven months as prices of vegetables rose at a slower pace.

The Consumer Price Index-based inflation stood at 6.58 percent in February compared with 7.59 percent in the preceding month, according to data released by the Ministry of Statistics and Program Implementation on Thursday. A Bloomberg poll of 38 economists estimated inflation at 6.72 percent.

That was aided by a cooling off in inflation in food and beverages to 9.45 percent against 11.79 percent in January, led by a modest rise in prices of vegetables. Vegetable prices increased 31.61 percent compared with 50.19 percent in January.

Core inflation remained stead at 4.03 percent in February compared to 3.92 percent last month.

“A broad weakness in demand, normalization of elevated perishable food items, as well as sharp cuts in cooking gas and transport fuels are the key drivers of the fall in retail inflation,” said Rahul Bajoria, chief India economist at Barclays.

Inflation Internals

• Fuel and light inflation stood at 6.36 percent compared with 3.66 percent in January.
• Inflation in transport and communication rose to 5.17 percent in February from 6.08 percent in January.
• Clothing and footwear inflation stood at 2.05 percent against 1.9 percent in January.
• Housing inflation stood at 4.24 percent in February compared with 4.2 percent last month.
• Rural inflation stood at 10.37 percent in February against 13.02 percent in January.
• Inflation in urban areas stood at 11.51 percent against 14.77 percent in the previous month.

Rate Cut Back On The Table

Despite the fall, retail inflation remains above the Monetary Policy Committee’s upper range of the inflation target of 6 percent. On a month-on-month basis, however, the index fell 0.7 percent in February, steeper than a drop of 0.1 percent seen in January.

Signs of peaking out of inflation along with concerns over the global and local spread of Coronavirus could prompt the MPC to resume rate cuts.

CPI inflation is set to re-enter the Reserve Bank of India’s target band in March as lower energy prices, a pull back in demand and global headwinds are mounting, said Bajoria. The RBI is likely to throw caution to the wind and could even move inter-meeting as uncertainty is rising, he said.

“The extent of the reduction in the headline CPI inflation in February 2020, combined with an unchanged core inflation print, will provide some relief, and boost the possibility of an upfronted rate cut in the April 2020 policy review,” said Aditi Nayar, principal economist at ICRA.