India’s retail inflation fell within the central bank’s target range for the first time in three months as a series of interest rate increases since last year slowed demand in Asia’s third largest economy.
(Bloomberg) — India’s retail inflation fell within the central bank’s target range for the first time in three months as a series of interest rate increases since last year slowed demand in Asia’s third largest economy.
The consumer price index rose 5.66% from a year earlier, according to data released by the Statistics Ministry on Wednesday. The reading is lowest in 15 months, and compares with a median forecast for a 5.70% gain in a Bloomberg survey of economists. Price gains accelerated to 6.44% in February.
Food prices, which make up about half of the inflation basket, moderated 4.79%, while fuel and light gained 8.91%. Clothing and footwear prices increased 8.18% and housing rose 4.96%, helping ease core inflationary pressures. The central bank target inflation between 2%-6%.
Core inflation, which strips out volatile food and fuel costs, eased below 6% for the first time in 18 months to 5.8%.
The moderation is driven by “a combination of some waning in price pressures and high base effects. Over the next few months, the downward pressures on headline CPI will be material,” said Rahul Bajoria, economist at Barclays Plc.
The latest print reinforces a move by the Reserve Bank of India to keep its policy unchanged in order to assess the cumulative impact of 250 basis points in total rate increases since May last year. It could also lay the ground for future cuts in the rates given the International Monetary Fund is now guiding for ultra-low rates in the US and other industrial countries.
What Bloomberg Economics Says..
Cooler food inflation was the key driver, along with a high year-earlier base that pulled fuel and most components of core inflation lower. Disinflation is expected to accelerate going forward, which should allow the central bank to keep rates on an extended hold after it paused its year long rate-hike cycle in April.
— Abhishek Gupta, economist
For the full note, click here
Easing prices will help India’s central bank support the economy that’s showing signs of cooling, prompting economists to forecast interest rate cuts later in the year. A forecast of a normal monsoon by the weather office will also provide reprieve to India’s policymakers.
“The pause is here to stay for at least two-three quarters before we get a pivot in the form of a cut,” said Madhavi Arora, economist at Emkay Global. Consumer inflation is set to ease further, while the core inflation may undershoot the headline, said Arora.
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