Retail prices cool off, thanks to rain; but a long way to go to be in RBI’s comfort zone

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Updated: Mar 12, 2020 6:32 PM

CPI inflation stood at 6.58 per cent in February, which was at 7.59 per cent in the previous month.

inflation, cpi, consumer price index, retail inflation, food pricesHigh food prices kept retail inflation on a rise in the past few months. (Bloomberg image)

Retail prices of household items eased in the month of February. CPI inflation stood at 6.58 per cent in February, which was at 7.59 per cent in the previous month. However, even after moderation, retail inflation is beyond RBI’s upper benchmark of 6 per cent. The prices softened on the back of a reduction in food prices due to improved rain. The food inflation fell from CFPI from 13.63 per cent in January to 10.81 per cent in February. High food prices kept retail inflation on a rise in the last half-year. The CPI inflation is in-line with the street estimates. The Reuter’s poll based on the feedback of over 40 economists had estimated February’s CPI inflation to be at 6.8 per cent, compared to 7.59 per cent inflation rate in January.

“CPI inflation came in weaker than expected, largely given lower food prices. CPI inflation is set to re-enter RBI’s target band in March, as lower energy prices pullback in demand and global headwinds are mounting. RBI is likely to throw caution in the wind and could even move inter-meeting as uncertainty is rising,” said Rahul Bajoria, Chief India Economist, Barclays.

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Even as the economy is hit by a major slowdown, RBI has maintained status-quo in the last two MPC meet. High inflation is also one of the reasons behind the RBI’s stand. However, another headwind from the coronavirus outbreak may force the Reserve Bank to take appropriate action.

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“Due to the coronavirus uncertainty, we expect RBI to take pre-emptive measures anytime soon or at April’s MPC policy and cut repo rate. If the virus spreads further very rapidly then we can expect a deeper cut of 50bps by RBI,” said Rahul Gupta, Head of Research- Currency, Emkay Global Financial Services.

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