Despite the continuance of low inflation and deceleration in growth, upsides to inflation cannot be ignored, especially if the monsoon does not turn out to be normal.
Retail inflation inched up to 2.9 percent in Mar'19, the second successive month of hardening. Food inflation turned positive after 5 months. Core inflation, however, is at the lowest since Oct'17.
We expect the RBI to cut rates by further a 25-50 bps in 2019 but maintain a pause at next policy meet to check more data, especially monsoon trends and the full budget for the year.
Modest hardening. Reversing the softening trend of recent months, retail inflation in Mar'19, at 2.9%, was the highest since Oct'18. Despite much higher core vs non-core inflation continuing, the former is trending down and the latter going up.
House-rent inflation softening. House rent has been and continues to be, the single largest contributor to retail inflation. Yet, this inflation is coming off. In Mar'19 it fell to the lowest level in 42 months.
Low fuel inflation. Despite the recent hardening in crude oil prices, a strong rupee and the non-reversal of duty cuts on fuel kept retail prices of diesel in deflation and petrol inflation relatively modest. The reduction of subsidy, however, led to kerosene inflation remaining high and LPG is out of deflation.
Food out of deflation. Despite fruit, vegetables, pulses and sugar being in deflation, after five months of deflation, food inflation has turned positive. Only meat and fish show relatively high inflation.
Services inflation high. Driven by healthcare and education, services inflation remained elevated.
A pause in Jun'19 likely. Despite the continuance of low inflation and deceleration in growth, upsides to inflation cannot be ignored, especially if the monsoon does not turn out to be normal. With two successive rate cuts, the RBI likely to pause in June 2019. We, however, continue to expect a 25-50 bp cut in 2019.Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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