Retail inflation seen cooling to new record low in May

indexSource: The Economic Times, June 09, 2017

Inflation in India is expected to have cooled to a new record low in May, a Reuters poll found, which could add pressure on the Reserve Bank of India to cut interest rates later in the year. The consumer price index likely rose 2.60 per cent in May from a year earlier, dipping from 2.99 per cent in April, due to a fall in the cost of pulses, cereals and perishable goods, according to the poll of 25 economists.

That would be the lowest level since the series began in 2012 and remain below the RBI‘s medium-term target of 4.0 per cent for the seventh successive month.

Forecasts ranged from 2.26 per cent to 3.49 per cent. The data will be released on June 12 at 1200 GMT.

“Consumer inflation touched an all-time low for the first time in the new series in May as food prices dipped into a negative territory on a yearly basis,” said Tushar Arora, senior economist at HDFC Bank.

“In addition, petrol and diesel prices were also reduced last month.”Food and beverage price inflation, which accounts for nearly 50 per cent of the consumer price index basket, eased to 0.61 per cent in April, significantly lower than the previous year’s high of 8.35 per cent in July.

The India Meteorological Department has forecast an above-average monsoon rainfall this year, crucial in an economy where two-thirds of the population depend on farming for their livelihood.

A good June-September monsoon, which delivers about 70 per cent of India’s annual rainfall, will help drive higher food and grain production, keeping food inflation in check. India’s central bank on Wednesday kept its benchmark interest rate unchanged while softening its hawkish stance following a drop in consumer inflation, as predicted in a Reuters poll.

The central bank lowered its headline inflation forecasts to a range of 2.0-3.5 per cent for the first half of fiscal year 2017/18 and 3.5-4.5 per cent in the second half, down from 4.5 per cent and 5 per cent, respectively.

The RBI is waiting to see if inflation will remain low, especially after the implementation of a goods and services tax from July 1. It tweaked its language in the latest statement to say risks were evenly balanced.

“The RBI will be on wait and watch mode, but probably cut rates by end of this calendar year if (the) current scenario persists,” said Karan Mehrishi, ?lead economist at ?SMERA Ratings Limited.

Calls for policy easing have grown after India’s economy grew a slower-than-expected 6.1 per cent in the January-March quarter, its slowest pace in more than two years and down from 7 per cent in the previous quarter.

Wholesale price inflation is expected to have slowed last month to 3.11 per cent from 3.85 per cent in April. That would be the lowest since June last year.

The new series of industrial output is expected to have risen 3.0 per cent in April after growing 2.7 per cent in March, mainly due to a revision in the base year to 2011-12 from the previous 2004-05, the poll found.

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