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Analysis | With CPI inflation at 6.7% in August, CEA Subramanian has got his 'expectation' wrong; MPC has a big dilemma ahead

As the August print shows, the CEA’s “expectation” has clearly gone wrong on the course of retail inflation.

September 15, 2020 / 09:24 PM IST

In February this year, Chief Economic Advisor Krishnamurthy Subramanian had said he expects CPI-based inflation to come down to sub-4.5 percent levels by July.

“I expect the headline inflation to converge back to core around July-August. Headline inflation should be around 4.2-4.5. The convergence should happen by July,” Subramanian said.

In August, CPI inflation remained elevated at 6.7 percent, way above the central bank’s comfort zone. The revised figures for the preceding month, too, shows the inflation almost at the same level. With the August print, the CPI inflation has breached the RBIs upper band of 6 per cent for five months.

Clearly, as the August print has shown, the CEA’s “expectation” has gone wrong.