India’s retail inflation declined to 5.07 percent in January against the 5.21 percent in December, on the back of lower food prices, as per the data released by the Central Statistics Organisation on Monday. The food prices observed a plunge as vegetable prices cooled in comparison to the last month. Despite retail inflation cooling down, rising global crude oil prices still pose an upside risks, says a report by CARE Ratings. The consumer price index (CPI) inflation will remain in the vicinity of 5 percent for the remaining part of the year, the report says. Rising crude oil prices and the base effect pose an upside risk, says the report released by CARE Ratings. In addition, factors such as fiscal deficit, MSP and customs duty hike will also impact the inflation number, the report added. CARE Ratings expect easing of food prices to have a soothing effect on retail inflation. However, non-food items such as clothing and footwear, housing, fuel and household goods to keep posing worry on inflation front, the report adds further.
RBI has already flagged these concerns in its last bi-monthly monetary policy. Various experts have already predicted that the budget proposals such as MSP hike for kharif crops to 1.5 times of their costs, unfavorable base effects and monsoon rains are very likely to drive the movement of inflation in the coming months. The Reserve Bank of India (RBI) is expected to remain more hawkish considering the potential spillover effect of the government’s fiscal deficit slippage in FY18.
Yesterday, IIP also recorded encouraging performance for a second straight month in December aided by a favorable base, although the pace of growth slowed to 7.1 percent from a revised 8.8 percent in the previous month. IIP grew at 7 percent or more in only 5 times out of the last 33 months. The growth of manufacturing sector was recorded at 8.4 percent in December as against 0.6 percent 2016. Capital goods output growth increased by 16.4 percent in December.