SBI Research sees inflation falling below 6 pc in March

Retail inflation is on course to fall below 6 per cent in March and close to 5 per cent by August, helping the central bank navigate the coronavirus pandemic with lower interest rates, say SBI analysts.

The headline price index unexpectedly reduced to 6.58 per cent in February from a 68-month high of 7.59 per cent in January, thus averaging at 6.67 per cent for Q4.

The steep fall was on the back of a decline in food and beverages inflation.

"Retail inflation is expected to slide below 6 percent in March and is likely to be close to 5 percent in August," SBI Research said in a note on Thursday. It goes on to project December 2021 inflation at closer to 2 per cent.

The headline numbers are set to fall given the massive plunge in oil prices, a major component of the inflation basket, which has tumbled close to 45 per cent since January due to the coronavirus pandemic.

Interestingly, Consumer Price Index using the food weights is at 4.88 per cent in February, clearly indicating the incorrect estimation methodology of the CSO using the current CES survey to estimate for CPI, the report noted.

Ironically, food inflation is still in double-digits even though many crops are trading below their MSP in the wholesale market, severely impacting farmers' income.

As crop price data show, 43 per cent crops out of the 23 rabi and kharif crops for which MSP were announced are still trading below their support prices -- much higher than the previous month when 30 per cent crops were below MSP.