Retail inflation slips to a 19-month low of 2.05% on falling food prices

Economists expect RBI to cut repo rate at April meet too

Retail price inflation rate declined to a 19-month low of 2.05 per cent in January, from 2.11 in December, due to persistent  fall in food prices and subdued fuel inflation, prompting economists to expect the Reserve Bank of India's monetary policy committee to cut the repo rate at its next meeting in April. 

The Consumer Price Index (CPI)-based inflation was revised downward from the earlier estimate of 2.19 per cent for December. 

The inflation had stood at 5.07 per cent in January 2018.

In fact, rural areas saw the CPI inflation rate coming down, while the rate of price rise remained the same in urban areas. 

The rate declined to 1.29 per cent, from 1.51 per cent, in rural areas over this period, while  it had stood at 2.91 per cent for both the months in urban areas.

Food deflation continued, though the rate of fall declined in both urban and rural areas. The deflation came down to 2.17 per cent in January, from 2.65 per cent in the previous month. Prices fell to 2.80 per cent, from 2.90 per cent in rural areas, and 0.96 per cent, from 1.89 per cent over this period.

Pulses, vegetables, fruit, sugar, and eggs witnessed persisted decline in prices.  

Fuel inflation also declined to 2.2 per cent, from 4.5 per cent. 

Shubhada Rao, chief economist at YES Bank, said, "Extended winter remains supportive of decelerating food prices.The fuel component, too, has surprised on the downside. This presents a scenario of CPI inflation rate between 2-3 per cent over the next five months. She said this raises the probability of a rate cut in April and beyond.

However, the inflation rate in education and health continued to surprise experts. Education saw the rate coming down to 7.99 per cent, from 8.38 per cent, but it still remained elevated. The same was the case with health, which saw the rate falling to 8.93 per cent, from 9.02 per cent.  
 

B Prasanna, head global markets group at ICICI Bank, said the conundrum of sharp spike in rural health and education prices still remains and requires watching. 

"Our expectations for the next few months are also very benign on headline CPI and hence, we believe there is room for further accommodation in the next policy meeting,” he said. 

Rucha Ranadive, economist at CARE Ratings, said she expected rate cuts of 25-50 basis points for 2019-20, though the timing would be driven by data.