Chief Economic Advisor, Arvind Subramaniam on Wednesday said that record low inflation was a paradigm shift in the inflationary process which has been missed by all.
Chief Economic Advisor, Arvind Subramaniam on Wednesday said that record low inflation was a paradigm shift in the inflationary process which has been missed by all. Speaking to reporters, Subramaniam said the shift has been missed by all and that the latest IIP and CPI data will surely be taken note by policy makers. India’s consumer price inflation fell to 1.54 percent in June, the lowest in five and half years. Inflation in May stood at 2.18 percent whereas the industrial output rose 1.7 percent in May from a year earlier.
Subramanian said, “This unusually and hearteningly low number is consistent with our analysis for some time now. The number of 1.54 per cent is historically low and reflects the firm and ongoing consolidation of macroeconomic stability. The last time we saw such inflation — according to slightly different CPI (IW) — was in 1999 and before that in August 1978.”
Analysts and economists expect the Reserve Bank of India to cut rates in the forthcoming policy review. In its last review, the central bank had kept key rates unchanged citing inflation risks. Anjali Verma, an economist with Phillip Capital India told Reuters, “We do expect a rate cut of 25 basis points in the August policy unless there is some major disappointment in the monsoon, I don’t see any upside risk to inflation by March 2018.”
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Aditi Nayar, Principal Economist, ICRA said, “The CPI inflation declined to a fresh series low of 1.5% in June 2017, largely on account of a deeper disinflation in food items. Moreover, core CPI inflation recorded a broad-based easing to 3.9% in June 2017 from 4.3% in May 2017. While the CPI inflation has undershot the midpoint of the RBI’s inflation target band of 4% for eight consecutive months, June 2017 marks the first instance of the lower end of the band of 2-6% being breached.”
“Overall, we expect the CPI inflation to remain below 2% in July 2017, which is the lower threshold of the RBI’s inflation target band of 2-6%. With a reversal of the favourable base effect likely to push the CPI inflation above 4.0% during H2 FY2018, there is a low likelihood of further rate cuts in H2 FY2018,” added Nayar.