January retail inflation falls to lowest in 2 years

The Consumer Price Index-(CPI) based inflation for the month of January 2017 plunged to 3.17 per cent, the lowest in at least two years, primarily due to a marginal increase in food prices. The retail inflation was 3.41 per cent in December and 5.69 per cent in January last year.

The Consumer Food Price Inflation (CFPI) for the month of January was 0.53 per cent, compared with 1.37 per cent in December and 6.85 per cent in January last year. Year-on-year prices of vegetables and pulses fell to 15.6 per cent and 6.6 per cent, respectively, last month. Inflation in January is well below the central bank’s target of 4 (+/-2) per cent.  The low inflation for January “was brought about mainly by a decline in food price inflation to 0.53 per cent, aided by negative growth rates in both vegetables and pulses,” said Madan Sabnavis, chief economist with Care Ratings. He added that ‘curiously’ non-food components such as clothing and footwear, housing, fuel and light showed higher price increases.

“Clearly, the non-food components have registered an increase and going ahead would tend to be upward moving. Higher global commodity prices will get ingrained in these components while food items will be unaffected,” Sabnavis noted. “For the next two months, we expect the CPI inflation rate to move towards 3.5-3.6 per cent range,” he added.

“A reversal in the base effect and the seasonal rise in prices of perishables are expected to push up the next two readings of CPI inflation. We continue to expect March 2017 inflation to exceed 4.5 per cent,” said Aditi Nayar, principal economist with ICRA. “The impact of the note ban on demand is not pervasive across the sub-groups of the CPI, with the effect being most apparent in the decline in inflation for clothing & footwear, household goods & services, and personal care & effects,” Nayar added.