CPI-inflation eases to 5-month low, but watch out for these concerns, say analysts

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Published: April 13, 2018 11:24:29 AM

The CPI inflation data for the month of March showed that retail inflation slowed down to 4.28% from 4.48% in the previous month.

cpi INFLATION IN MARCHThe cooling in food prices may be extended beyond the month of June, analysts say.

The benchmark CPI (Consumer Price Index) inflation may have eased to a 5-month low and may moderate further in the coming months, but certain concerns still remain which may affect the moderation going forward. A report by CARE Ratings said, “Food inflation is likely to moderate further in the next 2-3 months but may be affected by the unseasonal rains witnessed recently.” The CPI inflation data for the month of March that was released on Thursday  showed that retail inflation slowed down to 4.28 percent from 4.48 percent in the previous month.

The cooling in food prices may be extended beyond the month of June as monsoons are expected to be normal, CARE report said. But, firming of global crude oil prices, probable rise in minimum supporting price (MSP) of kharif crops, hike in HRA by state governments and unfavorable conditions may pose risks on the price level front, the report said.

“Signs of a pick-up in core pressures and hardening of inflationary expectations on higher oil prices and likelihood of MSP increases, might see the central bank adopt a cautious hue in the coming months. Policy nonetheless will maintain on a steady course in 2018. Bond markets have been underperforming in recent sessions and this is likely to spillover into tomorrow’s trade, with a slightly firmer than consensus inflation in today’s release to keep a lid on demand while lower centre’s borrowings offset by higher states’ supply,” Radhika Rao, India Economist, DBS Bank said.

The CARE doesn’t expect Reserve Bank of India (RBI) to cut rates till September 2018, The RBI may cut rates as inflation may soar in second half of the year, report said. Inflation may remain the range of 4.5 percent in the coming 3 to 4 months, report added.

The retail inflation cooled down on the back of lowering in vegetable and food prices. In the month of March, the food inflation fell to 2.81 percent from 3.26 percent in February. The inflation for food and beverage was down to 3.08 percent from 3.38 percent. The inflation for vegetables was down to 11.7 percent from 17.57 percent. The inflation is still higher than the one of 4 percent mandated by Reserve Bank of India (RBI). RBI took a less cautious stance in the first bi-monthly policy meeting of the financial year 2018-19 while maintaining the key rates at 6 percent.

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