Retail inflation to soften further, Oct CPI seen at 4.1%

Source: The Economic Times, Nov 08, 2016

NEW DELHI: Retail inflation is expected to soften to 4.1 per cent in October and ease further to sub-4 per cent level by November-December, largely helped by favourable base effect, says a Citigroup report.

According to the global financial services major, CPI inflation is likely to slide further to sub-4 per cent print by November-December before firming towards 4.5 per cent by March 2017. “October CPI inflation could decline to 4.1 per cent from 4.3 per cent last month as the impact from a favorable base effect more than offsets the sequential increase in CPI index,” Citigroup said in a note.

“We continue to see roughly 50 bps downside to RBI’s interim CPI target of 5 per cent by March 2017,” it added.

The report noted that the sequential increase in food index in October was largely led by higher prices of gram pulse, sugar and cooking oil, which were possibly due to increased festival demand for these key ingredients.

Outside food, fuel inflation could firm up in October with rise in petrol, diesel and kerosene prices, while core inflation trends are likely to remain stable at sub-5 per cent levels, the report said.On the Reserve Bank’s policy stance, the report said that subdued inflationary pressure in the near-term could open room for an accommodative policy, but the December FOMC meet might weight on the Central Bank’s policy stance.

“The subdued trends in CPI inflation in the near term and diminishing risk of a GST related jump in CPI inflation over medium term could tip the balance towards RBI frontloading its rate cut in Dec policy. However, we recognize the RBI policy comes just a week ahead of the December FOMC meet, which introduces some risk to our call,” Citigroup said.

Monetary Policy Committee (MPC), which has three members nominated by the government and the rest from RBI, lowered repo rate to 6.25 per cent from 6.50 per cent at the end of 2-day deliberations on October 4.

The next meeting of the MPC is scheduled on December 6 and 7.

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