February retail inflation at four-month low of 5.18%

The February headline numbers were far below estimates and may push RBI to not delay a cut in interest rates

Consumer Price Index (CPI)-based inflation for February contracted to the lowest in four months at 5.18 per cent, compared with 5.59 per cent in January and 5.37 per cent in February last year, on the back of a sharp decline in food prices, data released by the Central Statistics Office showed on Monday.

Consumer food price inflation rose 5.3 per cent for February, compared with a 6.85 per cent rise in January and 5.37 per cent in February last year, according to the data. In fact, the CPI inflation for January was the highest in 17 months, raising the prospect of a delay in any further interest rate cut by Reserve Bank of India Governor Raghuram Rajan.

Said Ashwani Kumar, chairman & managing director, Dena Bank and Indian Banks’ Association, “It is a substantial fall and strengthens the case for easing key policy rates.”

However, the February headline numbers and the announcement by Finance Minister Arun Jaitley in the Union Budget 2016-17 that the government would stick to the fiscal deficit target of 3.5 per cent in FY17 may force Rajan’s hand on the matter. The February headline numbers were far below estimates, with analysts polled by Reuters predicting CPI inflation of 5.6 per cent and those polled by Bloomberg predicting 5.5 per cent.

Food inflation fell at 5.30% after it had shot up to 6.85% in January, mainly on account of shortage in pulses supply.

Food & beverage inflation in the month was down at 5.52%, whereas vegetables saw a decrease in the inflation rate after rising for four straight months, to 0.70%.

Inflation in pulses continued to ease  to 38.30% in February, against 43.32% the previous month, but remained high despite the government's efforts in offloading seized pulses in the market to check prices and boost availability.

Fuel inflation eased to 4.59% in February from 5.32% in January, despite a series of excise duty hikes in petrol and diesel, led by a drop global crude oil prices.

Additionally, the wholesale price index (WPI)-based inflation fell for the 16th straight month in February, dropping to -0.91% compared to -0.90% in January.

While it was way back in 1975-76 that there was WPI-based deflation for a full year, the index had last shown inflation in October 2014, at 1.66%.

Government data released on Monday showed that a total build up in the inflation for the current financial year leading up to February was -1.19% compared to a -2.61% fall in the corresponding period of the previous year.