CPI inflation declined in February, but watch out for these 5 factors, says CARE

CARE Ratings expects that food inflation will remain moderate due to seasonal variations in the coming months, but slight uptick in CPI inflation may be reported.

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The rise in CPI was chiefly driven by hardening of prices in sugar and confectionery items, pan, tobacco and intoxicants. (Representative Image: PTI)

Backed by moderation in the prices of food items, CPI inflation for the month of February slowed down to 4.44 percent against 5.1 percent printed in January. However, the retail inflation is still higher than the 4 percent target set by the Reserve Bank of India (RBI). The IIP number for January also soared to 7.2 percent from 7.5 percent of December. The retail inflation may be nearly 5 percent by the fiscal year end, CARE Ratings said in a report. Despite inflation cooling down there may not be any interest rate change in April 2018 when RBI comes up with its next bi-monthly policy, CARE Ratings report added. The latest drop in retail inflation numbers is backed by moderating food prices on account of one-off seasonal factors, Richa Gupta, Senior Economist at Deloitte India said. There was a slight rise in core inflation but it was was counterbalanced by the plunge in food inflation, she added.

CARE Ratings’ view

CARE Ratings expects that food inflation will remain moderate due to seasonal variations in the coming months but slight uptick in inflation may occur due to these reasons

1)The rise in inflation is led by surge in global crude prices.

2)On account of 7th pay commission housing index may see a surge.

3)Fiscal deficit may also built demand side pressures.

4)The MSP announced in budget may exert pressure on inflation

5)Unfavourable weather conditions.

Meanwhile, IIP also soared to 7.5 percent for January. The fall in prices of food and vegetable eased to 13-month high countering the losses caused due to unseasonal rainfall. For the month of February, CPI food inflation was recorded at 3.26 percent in February from 4.7 percent in the month of January. However, the rising global crude oil prices especially in view of immenine output cuts  may put pressure on the CPI number in the days ahead. Good agricultural production is also expected to ease the CPI inflation further. The cooling of CPI inflation numbers also shows the impact of demonetisation and goods and services tax (GST) is also waninga way.

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