No respite from soaring retail inflation anytime soon, no visibility on RBI interest rate cuts

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Updated: February 13, 2020 12:05:45 PM

With inflation raising its ugly head once again, no respite is expected for the common man anytime soon, analysts said.

CPI: Retail Inflation increased in january, reaches to near 6 year high of 7.59 percentEven as industrial production too contracted in January after a slight improvement in December 2019, the rise in retail inflation is worrying.

With inflation raising its ugly head once again, no respite is expected for the common man anytime soon, analysts said. Even the RBI may take a longer break from cutting interest rates again, they added. However, more worrying is a narrower-than-expected fall in the inflation for vegetables which accounted for a large part of the surge in the previous month, analysts also said. Other than the rising core inflation, escalation in prices of services items is also a major concern for the economy. The CPI-based retail inflation surged to nearly a 6-month high of 7.59 per cent in January 2020 as against 7.35 per cent in December 2019, beating estimates. The core inflation surged to 4.1 per cent in January 2020. The sharp uptick in inflation is also expected to negate any chance of a rate cut by the RBI despite its accommodative stance in the February monetary policy meeting, said

“The food inflation is likely to subside in the coming months, but rising core inflation up from 3.5% to 4.2% is a cause for renewed concern as there is the fear of further escalation in the prices of services items. With the CPI inflation breaching the RBI MPC’s upper target again, the expectation of any further rate cuts by MPC despite the accommodative stance becomes minimal”, M Govinda Rao, Chief Economic Advisor, Brickwork Ratings, said.

Watch: What is inflation?

Even as industrial production too contracted in January after a slight improvement in December 2019, the rise in retail inflation is worrying. Despite the negative IIP growth, some improvement can be expected in the industrial activity in the last quarter of the current fiscal, M Govinda Rao added.

“CPI details are more worrisome. Core CPI rose to 4.2% and CPI ex vegetables rose to 40-month high of 5%. While veg & fruits inflation was on expected lines, other items grew faster”, Nikhil Gupta, Chief Economist at Motilal Oswal Financial Services, said.

The rise in January inflation is mainly on account of a continuous surge in food inflation (13.63 per cent), particularly of meat and fish (10.5 per cent), vegetables (50.12 per cent) and pulses (16.7 per cent). The sharp uptick in inflation is also on account of the base effect combined with a steep rise in the prices of fuel (3.66 per cent) and telecom tariffs.

“The internals of the food inflation are worrying, given a broad-based uptick across categories that tend to be sticky, such as proteins, and a narrower-than-expected reduction in the inflation for vegetables”, Aditi Nayar, Principal Economist, ICRA, said.

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