Retail inflation at historic low of 5.52% in October

But RBI might not cut rate in December monetary review

The Consumer-Price Index (CPI)-based inflation fell to an all-time low of 5.52 per cent in October against 6.46 per cent in the previous month but economists said the Reserve Bank of India (RBI) will wait at least till January before deciding on the industry’s demand for a rate cut.

According to data released by the ministry of statistics and programme implementation (MoSPI) on Wednesday, the consumer food price inflation, which has a 42.71 per cent weigh in CPI, eased to 5.59 per cent from 7.67 per cent in September and 12.93 per cent in October last year.

A poll of analysts by Bloomberg estimated the October retail inflation to stand at 5.69 per cent. The latest data will increase the clamour from finance ministry officials and the markets for Reserve Bank of India (RBI) Governor Raghuram Rajan to finally cut interest rates, which he has kept unchanged since January 2014. RBI is slated to announce its monetary review next month.

 

The call for rate cuts will only increase, especially, with the September Wholesale Price Index (WPI)-based inflation easing to 2.38 per cent, the lowest in five years.

However, economists advised RBI to exercise caution.“The CPI numbers are encouraging, but we should take these with a pinch of salt. The kharif crop output has been forecast by the government to be much lower than last year, and food prices may rise again. We need to wait and watch. This is why the Reserve Bank is still cautious,” said Madan Sabnavis, chief economist with CARE Ratings.

According to preliminary estimates, India’s foodgrain production in 2014-15 kharif crop season is expected to be around 120 million tonnes, nearly 9.5 million tonnes less than last year but officials have said there could be a further downward revision in the estimates as arrivals gather steam from middle of November onwards. These estimates were released in September.

Despite the inflation falling to a level much below the RBI's target of eight per cent for January 2015, and even six per cent for January 2016, a lowering of the key policy rate is unlikely in the near future.

“I think Rajan will wait and watch the numbers till January at the very least before deciding on a rate cut,” said Deloitte India senior director Anis Chakravarty.

However, the industry continued to call for slash in repo rate. “CII hopes this (fall in inflation) would propel the RBI to reduce policy rates in its forthcoming monetary policy especially as consumer demand continues to be tepid,” the chamber stated.

Most of the food sub-groups showed a fall in prices in October. The biggest drop came from vegetable prices, where prices actually dropped 1.45 per cent, compared to a rise of 8.59 per cent in September.

Fruit price rise eased to 17.49 per cent from 22.40 per cent last month. However, pulses and products rose 7.51 per cent from 7.18 per cent in September, while condiments and spices were up to 8.85 per cent from 8.58 per cent. Egg, fish and meat products and oils and fats did not show any month-over-month change in inflation.