Moneycontrol
Last Updated : Jul 12, 2017 06:58 PM IST | Source: Moneycontrol.com

June retail inflation at record low; falls to 1.54%

India’s retail inflation rate fell 1.54 percent in June from May’s 2.18 percent.

India’s retail inflation hit a record low of 1.54 percent in June, lowest since 1999, raising hopes of an interest rate cut, with the Finance Ministry obliquely nudging the central bank to reduce lending rates in the monetary policy next month.

Retail inflation, measured by Consumer Price Index (CPI) remained low in May touching 2.18 percent and 5.77 percent in June last year, owing to a sustained dip in food prices. Low inflation levels can indicate poor demand and weak economic activity.

“1.54 percent is historically low and reflects the firm and ongoing consolidation of macro-economic stability…this low heartening number has been consistent with our analysis for sometime now,” Chief Economic Advisor Arvind Subramanian said in a statement today.

The last time that India witnessed such inflation, Subramanian said, was in 1999 (in slightly different CPI industrial workers series).

Subramanian said that a shift in inflationary process to low levels of inflation has been missed by all.

“Clearly, this low number and what it implies about underlying price pressures…is something that I am sure, all policy makers will reflect upon very very carefully,” he said.

The inflation number is now below the range of the Reserve Bank of India’s (RBI) forecast for the current financial year, opening scope for a rate cut on August 2 by the apex bank. Last month, the RBI lowered the headline inflation expectation for 2017-18 to 2.0-3.5 percent for April-September first half, down from 4.5 percent earlier and 3.5-4.5 percent for the second half, down from 5 percent in its previous forecast.

“With headline inflation breaching the 2 percent threshold and the broad-based easing in the previously sticky core inflation in June 2017, the balance is tilted towards a 25 bps repo rate cut in the next bi-monthly meeting of the Monetary Policy Committee (MPC) to be held in August 2017,” Aditi Nayar, Principal Economist, ICRA said.

“Nevertheless, the MPC's decision may not be unanimous, as some members may choose to focus on the expected rise in CPI inflation post August 2017 rather than the lower-than-expected prints over the last several months,” Nayar said.

The year-on-year CPI inflation eased sharply to a series-low 3.0 percent in April 2017, due to food inflation. Inflation numbers continued to plunge to lower levels through May and June.

Consumer food price inflation, a metric to gauge changes in monthly kitchen costs, was (-)2.12 percent in June as compared with 0.69 percent in May.

The sharp fall in food inflation was brought about by a disinflation in the prices of pulses and vegetables.

Vegetables prices fell further and witnessed a negative growth of (-)16.53 percent in June as compared with (-)13.44 percent in May. Similarly, prices of pulses continued to fall at (-)21.92 percent, as compared with (-)19.45 in May.

Housing inflation remained nearly flat, growing 4.70 percent in June from 4.84 percent in May.

Fuel inflation was 4.84 percent in June, as compared with 5.46 percent in May.

Despite a mid-year switchover to GST had prompted shops to de-stock and clear up the inventory pile through discounts and rebates ahead of July 1 when the new system kicked in, clothing and footwear inflation marginally fell to 4.17 percent in June from with 4.41 percent in May.

According to Nayar, the final impact of the GST on inflation may not be known immediately as a number of businesses may choose to observe the impact of the GST on final prices over a period of time, before revising prices.

“Nevertheless, ICRA does not expect GST to result in a spike in the CPI inflation levels,” she said.
First Published on Jul 12, 2017 05:37 pm

tags #Economy

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