Alarm bells ring, inflation continues to rise way beyond RBI’s tolerance level

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Updated: February 12, 2020 6:20:39 PM

Retail inflation inched up to a six-year high in January on account of rising food prices, government data released on Wednesday showed.

Economic Survey 2020 update inflation increases because of mainly vegetables and pulses production decreasesIn its final bi-monthly monetary policy for FY20, the RBI kept repo rate unchanged at 5.15 per cent and revised inflation projection upward.

With inflation mounting its head in January, RBI’s decision to keep the interest rates unchanged in the final monetary policy of FY20 gets validated. The retail inflation inched up to a six-year high in January on account of rising food prices, government data released on Wednesday showed. The CPI-based retail inflation was recorded at 7.59 per cent up from 7.35 per cent last month. The December inflation figure was the highest since May 2014. The inflation rate of 2.05 per cent in December 2019. The food inflation last month was 13.63 per cent, compared with (-)2.24 per cent in January 2019. However, it is down from 14.19 per cent in December. The fuel and light inflation were posted at 3.66 per cent as against 0.7 per cent. The prices of pulses and related products surged by 16.71 per cent during the month.

In its final bi-monthly monetary policy for FY20, the RBI kept repo rate unchanged at 5.15 per cent and revised inflation projection upward. It estimated retail inflation in the range between 5 per cent and 5.4 per cent in the first half of the next fiscal starting April 1, 2020. According to a Reuters poll of 40 economists, annual consumer price inflation was expected to have surged to 7.40 percent in January.

Also read: FM Sitharaman says recovery around the corner as retail loan disbursement up; check what data shows

Watch: What is inflation?

“With a further hardening of the headline CPI inflation driven by a rise in the core print, coupled with only a mild decline in the food inflation, which persists in double-digits, the inflation for January 2020 is entirely unpleasant. Nevertheless, it is unlikely to materially alter the direction of monetary policy, with the MPC already having placed its forecast for the average CPI inflation in Q4 FY2020 at a high 6.5%. However, today’s data suggests that the pause is likely to be extended further”, Aditi Nayar, Principal Economist, ICRA, said.

“Higher inflation suggests that the RBI will not ease monetary policy even as industrial activity loses momentum. There is still a month and a half left before the next MPC meeting and the RBI will keep a watch on the developments around inflation and the impact of the coronavirus on China and global economy. The inflation- growth dynamics will keep policy makers on their toes”, Rumki Majumdar, Economist, Deloitte India, said.

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