Source: Business Standard, Oct 21, 2016
However, the rate of price rise came down to 4.33 per cent in September, its lowest monthly rise in a little over a year, from 5.05 per cent in August.Inflation could trend upwards to the Reserve Bank’s (RBI) target of five per cent by the end of this financial year or slightly breach it, economists said. They think RBI might cut its policy rate in its December review.
Inflation could also witness pressure from the house rent category, which has 10 per cent weight in the overall index and 21 per cent in the urban part, with the increase in house rent allowance (HRA) to government employees with the Seventh Pay Commission award.
Aditi Nayar, senior economist at ratings agency Icra, said on a sequential basis, the price of pulses such as arhar (pigeon pea), oils and tomato had risen in October, which would partly offset the favourable base effect for food inflation. In fact, year-on-year retail prices in Delhi markets in varieties of gram have risen about 90 per cent (see chart).
CARE Ratings Chief Economist Madan Sabnavis said chana (chickpea) had seen high price rise in the past two years, to continue till the new crop comes into the market, after January.
Ashok Gulati, former chairman of the Commission for Agricultural Costs and Prices, had earlier told this newspaper that inflation in cereals and pulses would moderate in the next few months but that did not include chana, one of the highest consumed pulses and mainly grown during the rabi season.
Sugar inflation rose 24.75 per cent in August and 25.77 per cent in September. As of Thursday, it was 39 per cent higher in Delhi over a year before. The sweetener is used widely in the festival season.
P K Joshi, director, South Asia, of the International Food Policy Research Institute, says between October and January, food inflation is usually low, as vegetables are in abundant supply and so are major kharif crops. The food basket has 45 per cent weight in the CPI.
Though retail prices of chana and sugar are a matter of concern, their individual weight in the overall inflation basket is relatively less and not expected to have a substantial impact on the general downward trend in price rise.
Nayar said prices of various fuels had risen in the ongoing month. While the direct impact on overall CPI inflation would be limited, given the modest weight of fuels and fares with market-linked pricing in the CPI basket, higher transports costs might have an indirect impact into prices of other commodities.
As a whole, the fuels and lighting category in CPI inflation rose to 3.07 per cent in September from 2.49 per cent the previous month. The World Bank expects global crude oil prices to rise around 24 per cent in 2017 from 2016.
Metal prices are expected to increase by three to 19 per cent in various categories in 2017 against those in 2016, according to the World Bank’s projections.
Nayar expects CPI inflation to track a U-shaped trend in the remainder of the financial year, with a dip to below four per cent in November, followed by a gentle uptrend to 5-5.1 per cent in March, with waning of the base effect and the impact of higher consumer demand.
Sabnavis also expects CPI inflation to go back to five per cent by end-March, from 4.31 per cent in September.
On wholesale price index-based inflation, Nayar said it would move higher in the next two quarters, from the average of 3.7 per cent in the September quarter.
RBI’s recent issue of the Monetary Policy Committee’s (MPC) October 3 and 4 meeting’s minutes showed members expecting inflation to soften on the back of a good monsoon. The cooling of inflation in September had raised hope of a further rate cut by RBI, which had earlier reduced the policy rate by 25 basis points.
Nayar said: “Subsequent to the release of the MPC minutes, we continue to hold our earlier view that a rate cut in December cannot be ruled out. However, the likelihood of a cut in December has not strengthened significantly after the minutes (release).”
Sabnavis said if CPI inflation remains below five per cent at the December review, the central bank might cut the rate. “I think it will,” he said.