The consensus in the poll said that the retail prices have likely fallen due to moderation in the food prices.
India’s retail inflation may cool down in the month of February, breaking a straight seven-month rising streak. The retail inflation is estimated to be 6.8 per cent, which is significantly lower than the 7.59 per cent inflation rate in the month of January, according to Reuter’s poll of over 40 economists. In January, retail inflation stood at the highest level since May 2014. The consensus in the poll said that the retail prices have likely fallen due to moderation in the food prices. However, the retail inflation is still expected to remain above the RBI’s target band. Earlier, the RBI had set a target of 2 – 6 per cent inflation rate, which was later pushed to 6.5 per cent for the fourth quarter.
“Inflation has most likely peaked and we expect it to trend materially lower in the coming months, back into the CPI band. As such, space for further policy easing is likely to increase, and the RBI will effectively need to decide whether it wants to reduce policy rates, inject more liquidity, continue with unconventional tools, do targeted lending for SMEs and small businesses, or a combination of all such measures,” said a Barclays report.
While higher agriculture production may further ease the inflation in the coming months, a steep fall in the oil prices may further act as a strong catalyst to cool down inflation. The crude oil prices have fallen to a range of USD 30 – 40 per barrel, which has eventually lowered the retail prices of petrol and diesel.
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The instability in the oil prices could be avoided only if the price war was not escalating further. Major OPEC countries have indicated increasing the oil supply, instead of cutting it. While it has caused a stir in the oil market globally, India has a window to cut its import bill as well as ease the inflation.