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CPI inflation at 19-month low on falling food prices, IIP growth recovers.


Date: 13-02-2019
Subject: CPI inflation at 19-month low on falling food prices, IIP growth recovers
Retail inflation hits a 19-month trough of 2.05% in January, as a deflation in food articles persisted and price pressure in fuel eased, showed the data released by the Central Statistics Organisation on Tuesday.

Industrial output growth touched 2.4% in December 2018, having recovered from a 17-month trough of 0.3% (revised) hit in the previous month. However, industrial growth still trails the average rise of 4.6% witnessed in the April-December period, and is expected to remain subdued, at least until February, due to an unfavourable base effect.

Inflation in January undershot the Reserve Bank of India’s (RBI’s) latest forecast of 2.8% for the March quarter, prompting some analysts to predict another rate cut by the central bank in April, given new RBI governor Shaktikanta Das’ focus on growth and his view that inflation remains benign.

The deflation in food articles for a fourth straight month through January suggests farm distress hasn’t yet subsided meaningfully, posing a challenge for the poll-bound government. It also signals the government’s promise of ensuring a 50% profit to farmers over costs for a range of crops may not have been backed by adequate procurement. Deflation in food has also blunted the negative impact of sticky core inflation on the headline CPI.

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 along with core inflation at 5.36% presents a scenario of CPI year-on-year between 2-3%. This raises the probability of rate cuts in April and beyond too.”

In a surprise move, the Monetary Policy Committee (MPC) last week cut the benchmark repo rate by 25 basis points, in its first cut in 18 months, and hinted of more room to cut the rates in the coming quarters. It remains unperturbed by the government’s fiscal expansion (The centre would breach the fiscal deficit target by 10 basis points in FY19 and by 30 basis points in FY20, according to the interim Budget) .

As for the Index of Industrial Production, capital goods witnessed volatility again. It rose 5.9% in January from a 3.4% drop in the previous month, suggesting a sustained recovery in investments is yet to take roots. A sharper contraction in consumer durables than non-durables suggests urban consumption, too, is under pressure. A 10.1% in infra goods in January, against 5% in the previous month, means the damaging impact of demonetisation and GST has waned.

Source: financialexpress.com

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