Inflation breaches RBI’s target in October; will the surge continue? Here’s what analysts say

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November 13, 2019 7:04 PM

Even as the retail inflation crossed the RBI’s comfort level for the first time in over a year, it may continue to remain higher in the remaining fiscal year, an analyst said.

The retail inflation breached the central bank’s medium-term target of 4 per cent in October for the first time in 15 months, on the back of higher food prices. 

Even as the retail inflation crossed the RBI’s comfort level for the first time in over a year, it may continue to remain higher in the remaining fiscal year, an analyst said. The CPI-based inflation may remain higher than 4 per cent mark in the remaining fiscal year, Aditi Nayar, said adding that this may further complicate the policy decisions in the wake of the ongoing slowdown. The RBI has targeted an inflation level at 4 per cent with plus and minus 2 per cent. The retail inflation breached the central bank’s medium-term target of 4 per cent in October for the first time in 15 months, on the back of higher food prices.

“The sharp uptick in the CPI inflation in October 2019 has contrasted with the industrial contraction recorded in September 2019. In our view, the extent to which the Q2 FY2020 GDP growth reading eases further from the 5.0% recorded in the previous quarter, will influence the MPC’s decision on whether to cut rates further, and by how much, in the December 2019 policy review,” she added.

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The inflation based on CPI was 3.99 per cent in September and 3.38 per cent in October 2018. The inflation in the food basket spiked to 7.89 per cent in October 2019 as against 5.11 per cent the preceding month. During the month, the prices of vegetables spiked to 26.10 per cent from 5.40 per cent in September, while for fruits it jumped to 4.08 per cent from 0.83 per cent.

“Growth concerns have become far more important than inflation in the current context. We expect growth in Q2FY20 (April-September) to come in at 4.5% which would be a big concern,” global news agency Reuters reported citing Anagha Deodhar, an economist at ICICI Securities, as saying.

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