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CPI inflation falls to 17-month low at 2.33% over food price deflation

Falling international crude prices had its impact on the inflation rate

Indivjal Dhasmana  |  New Delhi 

Vegetable, Retail inflation

The consumer price index- (CPI-) based rate fell to a 17-month low of 2.33 per cent in November against 3.38 per cent in October as food prices continued to fall for the second month in a row. If the trend persists, the monetary policy committee (MPC) may change its stance from "calibrated tightening" to "neutral", say economists.

Food rates declined at a faster pace of 2.61 per cent in November, compared to 0.86 per cent in October, an official release on Wednesday showed.

About 45 per cent of the is about food and hence sharp decline in its prices has led to the fall in rate.

Chart

Among food items, vegetables, pulses and sugar persisted with price decline. While the rate of price decline increased in case of vegetables and sugar to 15.59 per cent and 9.02 per cent in November against 8.06 per cent and 7.64 per cent in the previous month, the same in pulses fell to 9.22 per cent against 10.28 per cent.

However, there is doubt as to how long food deflation lasts. “In our view, factors such as weak post-monsoon rainfall and lagging rabi sowing cast some doubt on how long food prices would remain in the disinflation zone,” said Aditi Nayar, principal economist with Icra Ratings.

Falling international crude prices had its impact on the inflation rate. The rate of price rise in fuels fell to 7.39 per cent from 8.55 per cent. Inflation rate in house rent declined to 5.99 per cent from 6.06 per cent.

“The sharp easing in the headline inflation reflects a combination of favourable factors such as the correction in retail fuel prices, discomfiting factors such as a deeper disinflation in food prices, and base effects related to the waning impact of the HRA revision for central government employees,” Nayar said.

B Prasanna, head of global markets group of ICICI Bank, said he expected a change in monetary policy stance to “neutral” from “calibrated tightening” in the February policy and expectations of a rate cut will now start building.

“However, we should remain cautious as could pick up sharply towards H2 of FY20,” he said.

First Published: Wed, December 12 2018. 23:47 IST
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