Increase In Retail Inflation Reduces Chances Of Further Rate Cut

BE/RBI/28/2017

Inflation increased further due to a decrease in increase of food prices, however was well within the Target set.  RBI’s consumer price index rose 2.36 per cent in July as compared to the previous year.  The rise is said to be faster than what was originally expected.

This has brought down the chances of further rate cut by RBI, which has a central inflation target of four percent.  A steep fall in the core inflation or growth slump was not seen as per the experts view.

RBI due to disinflation pressures cut its policy rate early this month by 25 basis points to 6 per cent, which is said to be the lowest since November 2010.  However RBI has warned that Inflation could pick up further anytime.

Further:

  • Food prices contributed for nearly 50 per cent of the consumer price index.
  • Good rains during the current monsoon is expected to result in a bumper harvest, which could bring down the prices further.
  • Retail food prices had fallen by 0.29 percent in July when compared to last year and had fallen by 2.12 percent last year.
  • The wholesale price index rose 1.88 percent in July while the increase was 0.63 percent in July 2016.
  • The RBI expects retail inflation could speed up to 3.5 percent to 4.5 percent in October-December.
  • Economists feel that though inflation is expected to stay below target, a short term rise in food prices is a sort of warning.

Author: Admin Bankedge

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