Retail inflation seen easing in April on lower food prices

Source : .Financial Express 12 May 2017

Inflation seems to have cooled in April due to lower food prices, but the pullback may not give the Reserve Bank of India enough leeway to ease monetary policy anytime soon, according to a poll conducted by Reuters.

Consumer price inflation is expected to have remained below the RBI’s medium-term target of 4.0 per cent for the sixth successive month due to lower base effects and a fall in the cost of pulses, cereals and perishable goods.

The poll of more than 30 economists predicts inflation fell to a three-month low of 3.49 per cent in April from 3.81 per cent the previous month.

“Lower food component will take a toll on consumer inflation this time,” said Moumita Paul, economist at Anand Rathi Securities.

April inflation data is due at 1200 GMT on May 12.

In early April, the RBI surprised markets by raising the reverse repo rate by 25 basis points to 6.00 per cent as it attempted to squeeze excess liquidity. It left the repo rate at 6.25 per cent, a level where it has been since October.
The central bank raised its inflation estimate for the fiscal year 2017-18, expecting it to average 4.5 per cent in the first half and 5.0 per cent during the second, higher than its target.

The RBI is concerned a poor monsoon would result in a spike in food prices, which would force the central bank to raise interest rates for the first time in more than three years.

However, the India Meteorological Department has forecast the country will receive higher monsoon rainfall than previously predicted, as concerns have eased over the El Nino weather condition.

Also, the third advance estimates of food grains production for 2016-17, released by the Agriculture Ministry on Tuesday, showed normal monsoon rainfall last year pushed up food grains production to a record 273.38 million tonnes, beating a previous forecast of 271.98 million.

The record harvest may lead to ample crop stocks that will result in lower food inflation in the coming months. A recent Reuters poll showed economists expect borrowing costs to remain steady over the next 18 months, but a majority of economists who answered an extra question said the next move by the central bank would be a cut.

“We don’t really see an interest rate cut any time soon; it will remain stable at the current level and even if inflation breaches the 4 per cent level in the coming months, the RBI will continue to be on wait-and-watch mode,” said Karan Mehrishi, lead economist at SMERA Ratings Limited.

 

Wholesale price inflation is expected to have slowed last month to 4.79 per cent from 5.70 per cent in March, according to the poll.

The newly-rebased industrial production index will also be in focus. Industrial output is expected to have risen 1.5 per cent in March having fallen 1.2 per cent in February, the poll found.

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