1. Inflation falls to 5.5 year low, close to RBI’s lower limit for H1-FY17, Industrial Production rises

Inflation falls to 5.5 year low, close to RBI’s lower limit for H1-FY17, Industrial Production rises

India’s annual Consumer Price Index (CPI) inflation for May fell to 2.18% from 2.99% in April, moving towards the lower limit of the 2.0 to 3.5 % range forecasted by the RBI for the first half of the current Fiscal Year.

By: | Updated: June 12, 2017 5:59 PM
India’s annual Consumer Price Index (CPI) inflation for May fell to 2.18% from 2.99% in April, while the annual Index of Industrial Production (IIP) for April rose 3.1% from 2.7% in March. (Image: PTI)

India’s annual Consumer Price Index (CPI) inflation for May fell to 2.18% from 2.99% in April, moving towards the lower limit of the 2.0 to 3.5 % range forecasted by the RBI for the first half of the current Fiscal Year.

“Thus, the April reading has imparted considerable uncertainty to the evolving inflation trajectory, especially for the near months. If the configurations evident in April are sustained, then absent policy interventions, headline inflation is projected in the range of 2.0-3.5% in the first half of the year and 3.5-4.5% in the second half,” RBI said.

However, in its latest monetary policy review, RBI said the easing of inflation, excluding food and fuel, may be transient.

The annual Index of Industrial Production (IIP) for April rose 3.1% from 2.7% in March. Recently, the government had changed the base year for IIP calculation to 2011-2012 from the earlier 2004-2005. Wholesale Price Index (WPI) inflation for the month of May was down to 3.85% from 5.70% in April.

“CPI Inflation will stay low till July, greater chance of it falling in May to a new low of 2.58%,” D.K. Joshi, chief economist of Crisil had said before the release of this data.

Aditi Nayar, the principal economist at ICRA, had said that lower food inflation will dampen headline CPI inflation to a fresh series low of 2.6% in May 2017.

“A continued dip in prices of some pulses after the record crop in FY2017, and unseasonal weakness in prices of perishables like vegetables would contribute to a low month-on-month momentum in prices. Core CPI Inflation is likely to ease marginally to 4.4% in May 2017 (from 4.53% in April),” she said prior to the release of macroeconomic data.

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N.R. Bhanumurthy, a professor at the National Institute of Public Finance and Policy (NIPFP), had said that RBI is expecting short-term inflation to come down because of a fall in the prices of vegetables, pulses and other commodities like metal, which is why the retail inflation prices will again fall below 3% in May.

“In the medium term, they expect inflation to expand, which is why rate cut isn’t the very first step to follow. RBI is concerned with year-on-year inflation data and they expect India’s CPI inflation to be above 4% by the end of the financial year 2017-18,” Bhanumurthy said before the data was released.

According to Government data, retail inflation had jumped to a five-month high of 3.81 per cent in March, while inflation based on wholesale price index (WPI) slipped to 5.70 per cent.

The Reserve Bank in its monetary policy review meeting on 8 June, kept the key policy rates unchanged, with the repo rate at 6.25 per cent but increased SLR by 50 basis points.

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