Inflation pullback boosts RBI's easy money policy before Oct policy meeting

Retail inflation eases slightly to 6.26%, remains above RBI’s comfort level


By Administrator_India

Capital Sands

India’s retail inflation eased marginally to 6.26 per cent in June from 6.30 per cent in the previous month owing to moderation in rural inflation, even as it remained above the upper range of the Reserve Bank of India’s (RBI’s) 2-6 per cent target for the second straight month, the official data showed on Monday.

Retail inflation, measured by the consumer price inflation (CPI) index, is the main price gauge that the RBI tracks. It remained elevated due to soaring fuel prices and costlier items in the food basket.

Economists said the high retail inflation could be a cause for concern for the RBI, though it might not be in a hurry to tweak the policy rate or its accommodative stance.

The minutes of the RBI’s June policy meeting had showed that while the central bank continued to focus on growth, it would remain watchful about inflation.

“Following today’s CPI inflation print, we expect the inflation forecasts to be revised upwards in the next Monetary Policy Committee (MPC) review, amid a status quo in the rates and stance, albeit with an underlying tone of uneasiness in the commentary,” said Aditi Nayar, chief economist, ICRA.

“The tussle between supporting the nascent, incomplete revival in growth and preserving the anchoring of inflationary expectations will continue. The individual MPC members may have a varying tolerance for inflation that persists above the 6 per cent target beyond a quarter, during the revival phase. If CPI inflation remains entrenched above the 6 per cent upper threshold in the next two prints (July-August 2021), a preponement of rate normalisation can’t be ruled out,” Nayar added.

Food inflation in June rose to 5.15 per cent from 5.01 per cent in May. The uptick in food inflation was driven by segments such as egg and oils. Substantial early rainfall had led to sowing up to June 25 lagging last year’s level by 22 per cent.

Inflation in the fuel and light segment jumped 12.68 per cent in June, while in clothing and footwear, it rose 6.21 per cent. The housing segment inched up 3.75 per cent.

In April, retail inflation had eased to a three-month low of 4.29 per cent, given the localised lockdowns in the aftermath of the second wave, as well as a favourable base effect.

Madan Sabnavis, chief economist, Care Ratings, said the main push had come from miscellaneous and fuel and light segments, with increases of 11.6 per cent in transport and communications and 12.7 per cent in fuel. The higher fuel costs have gotten translated into all segments. There is a need for the government to start lowering taxes or CPI inflation will increase and put pressure on the MPC, he said. “We expect CPI inflation to be in the 6 per cent range for two more months,” he added.

Madhavi Arora, lead economist, Emkay Global Financial Services, said the June print was a positive surprise and should augur well for the inflation estimates ahead. It could also push the inflation average for the year near the RBI’s average if the momentum remained tamed, Arora said. “We remain watchful of pass-through of impending cost push pressures in core goods inflation, while reopening-led ensuing demand revival in select contact-sensitive household services could pressure core services inflation ahead. However, the MPC may still choose to look through the spike in inflation in the near term, with the monetary reaction function currently hinging more on growth revival becoming sustainable.’’


How useful was this post?

Click on a star to rate it!

Average rating 0 / 5. Vote count: 0

No votes so far! Be the first to rate this post.

Leave a Reply

Your email address will not be published. Required fields are marked *