A customer hands over an Indian fifty rupee banknote to a vendor at the Laxmanrao Yadav vegetable market in Mumbai, India (Photographer: Dhiraj Singh/Bloomberg)  

CPI Inflation Rises To Four-Month High

Retail Inflation in India rose for the first time in four months as the year-on-year fall in food prices eased.

CPI inflation stood at 2.57 percent in February compared to a revised 1.97 percent in January 2019, according to data by the Ministry of Statistics and Program Implementation. A Bloomberg poll of economists had estimated inflation at 2.4 percent for February 2019.

Core inflation, however, remained elevated at close to 5.5 percent in February.

At current levels, CPI inflation is still well below the mid-point of India’s inflation target of 4 (+/-2) percent. Inflation in India has now remained below the central bank’s target for seven consecutive months, prompting the Monetary Policy Committee to cut interest rates by 25 basis points for the first time in 18 months in February. Another rate cut in April is seen as likely by economists.

With inflation remaining below RBI’s target, inflationary expectations declining and growth profile weakening, RBI may front load its monetary easing in the beginning of FY20.
Devendra Pant, Chief Economist, India Ratings

Inflation Internals

  • CPI food inflation stood at -0.66 percent in February compared to -2.17 percent in January.
  • Fuel and light inflation stood at 1.24 percent in February compared to 2.2 percent in January.
  • Housing inflation stood at 5.10 percent compared to 5.2 percent in January.
  • Clothing and footwear inflation was at 2.73 percent compared to 2.95 percent in January.
  • Inflation in the households goods and services segment stood at 6.29 percent compared to 6.45 percent in January.
  • Inflation in the transport and communication segment came in at 3.08 percent compared to 3.44 percent in January.
  • Health inflation was at 8.82 percent compared to 8.93 percent in January.
  • Inflation in the education segment was at 8.13 percent compared to 7.99 percent in January.
The upward movement was driven primarily by a sequential rise seen in various food groups, except in vegetables. Core inflation moved down slightly as expected, reflecting easing of input costs, pricing powers and growing slack in the economy. The earlier spikes seen in rural health and education seem to have stabilised for the moment.
B Prasanna, Head - Global Markets Group, ICICI Bank

Food Disinflation Easing?

The rise in the headline index in February was partly attributable to a rise in the year-on-year rate for food inflation. Vegetable prices declined 7.69 percent over last year in February, compared to a 13 percent year-on-year decline in January.

However, the month-on-month movement of CPI Food Index shows that price levels remain flat. The CPI Food Index stood at 135.2 in February compared to 135 in January. Segments such as pulses and fruits are starting to see a marginal pick-up in index levels, while others like vegetables continue to see a sequential fall in prices.

The sharp fall in food prices, which dragged down headline inflation, has caught policy makers by surprise. However, base effect will mean that year-on-year food inflation will now slowly start to rise.

There seems to be an improvement in market prices in selected categories across coarse cereals, oilseeds and even pulses.It seems that the tide of continued decline in food prices may be turning around the corner, but we still expect headline CPI to stay decisively below 4 percent till August / September 2019.   
Soumyakanti Ghosh, Chief Economist, SBI