Services inflation needs to decline for 4% CPI: SBI's Ecowarp

In order to achieve a four per cent CPI (consumer price index) rate, services inflation needs to decline by 86 basis points (BPS), lending major State Bank of India (SBI) reported in an economic research paper on Tuesday.

On Monday, the Central Statistics Office (CSO) reported that India's annual retail inflation eased to 3.17 per cent in January from 3.41 per cent in December and 5.69 per cent reported during the corresponding period last year.

"Interestingly, we did an exercise to understand if the core CPI declines to 4 per cent, what has to be achieved in terms of the sticky services CPI component," the economic research department (ERD) of SBI was quoted in a report.

"Our estimates show that there has to be a decline in services inflation by 86 bps. The contribution of doctor's fee, bus fare, tuition fees etc will have to decline by more than 100 bps," said the bank's Ecowrap publication.

"For example, doctors fee contribution has to decline by 161 basis points from the current levels. The decline will have to be larger if food prices rise from current levels. The moot point is it feasible or desirable?"

According to Ecowrap, SBI's ERD expect CPI and core CPI to inch up in the subsequent months as components like education will start to increase because of seasonality.

"CPI, however, will stay within reasonable limits in the first half of FY18 at 4.5 per cent with a downward bias. We see February and March CPI below 4 per cent now," disclosed the Ecowrap publication.

According to Ecowrap, the shift in RBI's (Reserve Bank of India) monetary stance to neutral from the earlier accommodative was not supported by data.

--IANS

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