Retail inflation at two-year low of 3.6%

Retail inflation at two-year low of 3.6%

  • Retail inflation eased significantly in November, with the Consumer Price Index (CPI) growing just 3.63 per cent, its slowest rate in two years, due to a sharp slowdown in food inflation.
  • Growth in the CPI was 4.2 per cent in October, and has been steadily slowing since July, when it was 6 per cent.
  • This was mostly due to food inflation, which registered its 4th consecutive month of slowdown, coming in at 2.56 % in November from 8 % in July.
  • The Reserve Bank of India had, in its latest policy review, kept interest rates unchanged citing concerns over the possibility of firming oil prices fuelling higher inflation.
  • While the demonetisation of high-value currency notes has hit consumption expenditure, core inflation has largely remained stable.
  • The fall in retail inflation seems to be on the back of a favourable base effect coupled with some downside due to the move to demonetise.
  • The case for reducing interest rate by the time of the next RBI policy review would have become stronger.
  • Overall, the (core inflation) number is likely to remain below the RBI’s threshold of 5 per cent for March 2017 in the coming months and should pave the way for another 25 bps cut in the coming months.

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