Retail Inflation At Its Lowest Level In January 2017
Inflation for perishable goods declined further in January.
India’s retail inflation fell to its lowest reading ever, as prices of vegetables and pulses remained low in January 2017.
Consumer price inflation declined to 3.17 percent last month compared to 3.41 percent in December 2016 and 3.63 percent in November 2016, data from the Central Statistics Office showed. At current levels, retail inflation remains well below the Reserve Bank of India’s (RBI) target of 5 percent for March 2017. A Bloomberg poll of 32 economists estimated the inflation to fall to 3.24 percent in January.
The impact of demonetisation continued to reflect on segments like fruits and vegetables as prices remained well below levels seen last year. The shortage of currency hit perishable items the hardest. This appeared to have continued in January even as currency availability improved marginally.
Vegetable prices were down 15.62 percent over the same month last year. In December, inflation in this segment was at -14.59 percent.
Inflation for meat and fish fell to 2.98 percent compared to 4.79 percent in December. Other categories like pulses also saw a sharp fall in inflation to -6.62 percent.
While headline inflation fell, core inflation rose.
Core inflation rose to 5.1 percent in January from 5 percent in December. Fuel linked components such as transportation also saw an increase in price levels due to higher global oil prices.
The surprise, however, came from core inflation that, contrary to expectations, rose to 5.1 percent in January, from 5 percent in December. Within core, inflation in education and miscellaneous, which comprise 33 percent of the index, rose to 5.1 percent or 30 bps over November. While there was some decline in inflation in household goods and services, health, and personal care – reflecting the impact of demonetisation on demand - inflation in these items was high at 4.8 percent average in January.Crisil Research
On February 8, the RBI shifted its stance to neutral from accommodative, suggesting an end to the rate cut cycle that began in 2015. A key parameter that contributed to this decision, according to RBI Deputy Governor Viral Acharya, was that though headline inflation had fallen substantially, core inflation continued to remain “sticky”.
Inflation has seen a downward trajectory in the last three months mainly due to the deflationary pressure on perishables, the RBI Governor Urjit Patel noted in the press conference after the policy review meeting.
On the inflation front, transient factors including anecdotal evidence on fire sales of perishables have discoloured an objective assessment on inflation pressures. For example, if vegetables are excluded, CPI inflation would exceed the CSO’s official print for the month of December, which was of 3.4 percent, by as much as 140 basis points.Urjit Patel, Governor, RBI
Demonetisation will have a temporary impact and headline inflation is expected to rise once the disruption caused by demonetisation settles, said Manish Wadhawan of HSBC India.
The inflation which went down the last two or three readings is primarily under foods and vegetables which is very transitory. As remonetisation takes place, we can see inflation coming back.Manish Wadhawan, Managing Director & Head of Interest Rates, HSBC