Retail inflation moved up to 5.11 per cent in January month-on-month, measured on a new base year 2012, mainly due to dearer food items including fruits and vegetables.
In December, retail inflation based on the Consumer Price Index (CPI) was at 4.28 per cent (recalculated with new base year).
The CPI inflation in December was 5 per cent with 2010 as base year.
The Central Statistics Office (CSO) has revised the base year to 2012 from 2010 for computing the consumer price index.
After releasing the new series, Chief Statistician T C A Anant told reporters that “inflation in 2014-15 will be lower than the 2013-14 level”.
He further said that besides changes in weight of items and groups, “we have shifted to geometric mean for computing inflation from arithmetic mean used in previous series.”
Food inflation in January was 6.13 per cent due to costlier fruits, vegetable and cereals.
The rate of price rise in egg contracted by 0.24 per cent in January, while the same shot up to 9.38 per cent in milk and related products.
The government also released Consumer Food Price Index (CFPI) which stood at 6.06 per cent on annual basis.
SHUBHADA RAO, CHIEF ECONOMIST, YES BANK, MUMBAI
“A key message from a policy perspective is that the disinflation momentum seems to be intact.
“We continue to believe there would be some headroom to cut rates further 50 basis points in 2015.”
JYOTINDER KAUR, PRINCIPAL ECONOMIST, HDFC BANK, NEW DELHI
“The headline number has surprised on the downside. Going by the current pace of inflation, this should mean a significant undershooting of the RBI’s target for both March 2015 and January 2016. All this data is re-assuring, as we were of the opinion that space exists for more monetary easing.
“While there was some degree of confusion over the RBI’s response to the new GDP series, we believe that we should expect another 75 bps cuts over the remainder of the calendar year.
“Whether RBI will revise the target now will be a tricky question, but it will simply mean entering into an unnecessary disinflationary path.
“As RBI has already mentioned, the 4 percent target is not a medium target and this number in conjunction with the low capacity utilisation and low pricing power should mean that there is some slack in the economy.
“Just because inflation is trending lower doesn’t mean it’s time to reduce targets.
“On the IIP we aren’t completely surprised and it’s a fairly boring reading compared to the CPI. But it is perhaps somewhat of a counter balance to the euphoria built around the new GDP reading.”
INDRANIL PAN, CHIEF ECONOMIST, KOTAK MAHINDRA BANK, MUMBAI
“Under the new series the difference in inflation between January and December is higher than in the old series, which means the pick up in inflation was faster in January.
“But it won’t be right to compare the new series with RBI’s inflation target of 6 percent based on the old series. Given the way inflation is lower under new series compared to the old series, RBI should now bring down its inflation target to 5 percent by March 2015.”
Debopam Chaudhuri, VP- Research & Chief Economist, ZyFin Research:
Retail inflation has inched up slightly, with food inflation remaining stubborn . Interestingly, compared to rural India, food inflation has seen a more sharper spike in Indian cities, which indicates prevalence of supply anomalies leading to price differentials. I don’t feel the inflation data provides any significant base for an easy monetary policy, yet.
The continued growth in industrial production is a strong signal towards a healing economy. With highly discouraging data reported for the core sector, IIP was expected to have slowed down in December. However, with more than 59% of the industries surveyed yielding a positive growth, IIP remains positive. Hopefully the markets would react positively to this reinforced sign of confidence in Indian economy. With consumer sentiment improving, consumer durbales should turnaround soon providing further support to Indian industrial activity.
India retail inflation accelerates in Jan, but stays below RBI’s target
(Reuters) – India’s retail inflation accelerated in January after shifting to a new base year for calculating prices, but stayed well below the central bank’s target, bolstering prospects for further interest rate cuts.
Consumer prices rose an annual 5.11 percent compared with a 4.28 percent gain in December, the statistics department said on Thursday after it changed the base year for measuring inflation to 2012 from 2010.
Under the old series, inflation was reported at 5 percent in December.
The revamped index carries a higher weight for education and health services, but has a lower weight for food and fuel items, which authorities say better reflects changing consumption patterns.
The Reserve Bank of India (RBI) aims to keep inflation at or below 6 percent in the period to January 2016 and is widely expected to resume its monetary easing after Finance Minister Arun Jaitley presents his annual budget on Feb. 28.
“The headline number has surprised on the downside,” said Jyotinder Kaur, principal economist at HDFC Bank. “All this data is re-assuring, as we were of the opinion that space exists for more monetary easing.”
The central bank kept its policy repo rate unchanged at 7.75 percent early this month after surprising investors in January with the first interest rate cut in 20 months.
Thursday’s data comes days after revisions to the way New Delhi calculates gross domestic product (GDP) have dramatically lifted reported growth rates, making India officially the fastest growing major economy in the world.
With the economy suddenly appearing to be motoring again, the RBI may have to think twice about the risk of stoking inflation before deciding to lower interest rates again.
Adding to the conundrum, annual industrial output growth slowed to 1.7 percent in December from 3.9 percent a month before, separate government data showed on Thursday.
“Today’s data point to increasing slack in the economy,” said Shilan Shah, India Economist at Capital Economics.
“As such, while the revised GDP data suggest that the economy is growing much faster than previously thought, the case for further policy loosening remains intact.”
A collapse in global oil prices has unleashed a wave of monetary easing around the world as central bankers seek to stave off deflation and bolster their economies.
Finance officials from the Group of G20 leading economies sketched an uncertain outlook for global growth earlier this week and vowed to use monetary and fiscal policy if needed to stem any risk of stagnation.