In the months to come, inflationary pressures should ease further, if inflation in pulses & milk & milk products does not pick up further-Crisil

CPI inflation fell further to 8.1% in February from 8.8% in the previous month. Retail inflation has fallen for 3 months in a row, driven by an easing of vegetable prices. Inflation in vegetables is now down to 14% from over 61% in November 2013. Core inflation (excluding food and fuel & light) however, continues to tread around the 8% territory.

Although overall food inflation has fallen to 8.6%, prices of pulses have been rising at a faster pace for 4 consecutive months now. Prices of fruits and milk & milk products too, have been witnessing rising inflation in the recent months.

While overall inflation has fallen from a high of 11.2% in November to 8.1% in February, core inflation has come down to only 8.0% from 8.2% over the same period. Inflation in non-food categories like housing, clothing bedding and footwear remains high at over 9%.

In the months to come, inflationary pressures should ease further, if inflation in food articles such as pulses and milk & milk products does not pick up further. The lagged impact of past rate hikes and weak consumption demand will lower pressure on core inflation. However, an enhanced possibility of an El Ni in 2014 has emerged as an upside risk to inflation. Though an El Ni does not necessarily imply monsoon failure in India, in case it happens CPI inflation, with nearly 50% weight of agriculture-related articles can rise sharply in 2014-15.

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