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Instant view: India's December retail inflation rate drops to 2.19 percent, lowest since June 2017

Reuters  |  BENGALURU/MUMBAI 

BENGALURU/(Reuters) - India's retail rate dropped to 2.19 percent in December from a year earlier, the lowest level since June 2017, government data showed on Monday. The decline was helped by a fall in prices and smaller increases in fuel costs.

Analysts polled by had forecast December's annual increase in the at 2.20 percent, compared with November's 2.33 percent.

COMMENTARY

SHUBHADA RAO, CHIEF ECONOMIST, YES BANK, MUMBAI

"At 2.19 percent, CPI for December has printed close to our estimate of 2.11 percent. Led by continued contraction in prices, the softer CPI was supported by contraction in fuel prices and housing in December. However, miscellaneous component led by education and health has inched up in December."

"Going forward we expect further downside in our average projection of 4 percent in FY19, closer to 3.5-3.7 percent band. This paves way for the committee to not just change its stance to "neutral" but also mull over a possible rate cut. The inflation trajectory looks below 4 percent over the next quarter."

ABHISHEK UPADHYAY, SENIOR ECONOMIST, ICICI SECURITIES PRIMARY DEALERSHIP, MUMBAI

"Inflation is exactly in line with our projections, but internals are weaker. declined less than expected, despite a substantial drop in auto fuel prices. Key service segments including household goods, health as well as education have increased sharply on a sequential basis, and belie fears of any sharp slowdown in growth. inflation still remains muted, but there was no big surprise after internals for the previous months showed cereals prices fell by a record, despite higher minimum support prices."

"From a standpoint, is actually tracking slightly lower than RBI's forecast for the current quarter of 2.7 percent. That makes it likely that would change stance back to "neutral". But elevated increases risk that can surprise higher next year in starts to pick up again from current exceptionally low levels. This would preclude any proactive easing from the in our view. Given that output gap has more or less closed despite recent soft patch in growth and there are risks that fiscal stance could turn more stimulative in an election year, a cautious approach to any monetary policy easing is merited. Sharp focus on alleviating any liquidity strains in the system is the correct approach to achieve easier monetary conditions at this stage."

DEVENDRA KUMAR PANT, CHIEF ECONOMIST, RATINGS & RESEARCH, NEW DELHI

"The CPI data over the last five months has undershot RBI's target of 4 percent and this is mainly because of food Naturally lower have had its impact. Now if you look at core data which excludes food, energy, transport and communication, it has still remained elevated. In the last 14 months it has remained in excess of 5.7 percent. However, there was clearly a downward trend in core numbers compared to the first quarter."

"It is unlikely that the government will make out any broad policy announcements in the FY20 budget. However, we will have to keep a close eye on what the two major political parties announce in their election manifestos given 'competitive populism' being the flavour currently."

TUSHAR ARORA, SENIOR ECONOMIST, HDFC BANK, NEW DELHI

"Another month of "

"Going forward, for another six to seven months, is unlikely to breach the central bank's target of 4 percent. This certainly opens up room for a rate cut. If not in February, we could see a 25 bps (basis points) cut in the policy rate by April."

"Thereafter, if the MSP (minimum support price) risk does not materialise this year and assuming remain around $60 a barrel, there could be a possibility of second rate cut as well."

ARUN THUKRAL, MD & CEO, AXIS SECURITIES LTD, MUMBAI

"Inflation is trending southwards for last six odd months on the back of food and cooling fuel prices as crude prices have cooled off. Given these conditions, the overall inflation is expected to trend in the comfort zone of the central "

"Currently, (Reserve of India) has 'calibrated tightening' as its stance and given the deflationary forces it is likely to temper it down to neutral stance followed by a rate cut of around 25 bps in the near future i.e. in the next two meets. Probably, at its February 2019 meet, RBI would mellow its stance to neutral and wait for April 2019 meet for reducing the rates."

Sharp rises in would contribute to the inflation along with the impact of rising MSPs (minimum support prices). Volatility in global financial markets continues to impart uncertainty to the inflation outlook, thus being the third key risk. The sharp rise in input costs, combined with rising pricing power, has the potential to cause higher pass-through of for both goods and services, thus stoking inflation.

Any fiscal slippage at the central or state level will have a bearing on the inflation outlook, besides heightening market volatility and crowding out private sector investment; this factor is of utmost importance, given that the government would likely announce some populous measures like universal basic income or input support scheme for farmers and landless labourers ahead of the in its interim budget."

(Reporting by and in Bengaluru, and Suvashree Dey Choudhury in Mumbai; Editing by Subhranshu Sahu)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Mon, January 14 2019. 18:34 IST
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