Enthused by moderation in retail inflation, the Finance Ministry today expressed hope that RBI will take into account improvement in the price situation while deciding on rate cut in its next policy review due in October.
“With regard to the rate cut, there is a direct relationship between the inflation figures and policy rates of the Reserve Bank. So, inflation has moderated as expected. I would, therefore, expect RBI to take this into consideration and take its call… I’m sure they will consider all the aspects and take a call,” Economic Affairs Secretary told reporters.
Retail inflation eased to a five-month low of 5.05 per cent in August, mainly because of a slower rate of price increase in vegetables as well as food and beverages.
The rate of price growth, based on the consumer price index (CPI), was the lowest since March 2016 when it stood at 4.83 per cent.
In the preceding month July, CPI inflation was at a nearly two-year high of 6.07 per cent. In August 2015, the rate of price rise was 3.74 per cent.
Das further said, “Last month when the CPI number for July was released, which was 6.1 per cent, we had said the CPI inflation will moderate and come down… this is on expected lines.”
Elaborating, he said, “The earlier rise of inflation was on account of rise in price of pulses and vegetables. Now, there has been a significant moderation in pulses and vegetables.”
According to Das, that mainly explains the inflation coming down to 5 per cent. “Now, going forward, we expect inflation level to remain in the moderate zone and perhaps go down also, depending on pulse prices, which we are expecting to come down even further.”
Referring to the index of industrial production (IIP) numbers, he said, “It is certainly a matter of concern, but let us also remember that the IIP data are a sample of 400 companies. So, they are not truly reflective of the state of affairs.”
Industrial production declined by 2.4 per cent in July, recording the worst performance in eight months, mainly on account of a declining output in manufacturing and capital goods sectors.
On a cumulative basis, the factory output in April-July declined by 0.2 per cent compared with 3.5 per cent growth in the year-ago period.
The previous low was witnessed in November last year when the factory output shrank by 3.4 per cent. Factory output, measured in terms of the index of industrial production (IIP), had grown by 4.3 per cent in July last year.