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.