NEW DELHI: Retail inflation Based on the consumer price index (CPI), it fell to an 11-month low at 5.88% in November according to data released Monday by the government.
Since the start of the year, inflation numbers have remained within the Reserve Bank of India (RBI) tolerance range of 2-6%. The government has given the RBI the task of keeping inflation within the 2-4% range with a margin 2%.
Retail inflation was at 5.59% in December 2013. CPI numbers have been on an upward trend and climbed to an 8-year high in April at 7.79%.
Now, we can say that retail inflation is back at the level it was two months ago when Russia invaded Ukraine in Feb. This sent global commodity and food prices skyrocketing.
Inflation figures in India have cooled for the second consecutive month. The October retail inflation fell to 6.77%, a three-month low. This was due to a slower increase in food prices, and a stronger base effect, which bolstered bets on lower rate increases by central banks going ahead.
These data are available days after RBI slowed interest rate increases while vowing not to lose sight of inflation and acting as necessary.
“Worst inflation ever”
Last week, Shaktikanta Das, the RBI governor, presented his bi-monthly Monetary Policy Statement. He stated that the worst of this year’s inflationary spike was behind him but cautioned there was no room to be complacent.
Das stated that the MPC believed further monetary policy actions were necessary to maintain inflation expectations stable, end core inflation persistence and limit second-round effects.
Michael Patra, RBI deputy governor in charge of monetary policy, also agreed with Das’s views. He said that while the worst of inflation has passed, moderation will be necessary.
“The worst inflation is over, but moderation of inflation will take a lot of effort and be difficult. Patra stated that we need to shepherd inflation into the tolerance range and then towards the target.
He stressed the importance of the lower rate hike than at past meetings but added that the central bank was watching closely for any second round inflation effects.
Rate hikes are slower
The key repo rate was increased by 35 basis points by RBI, marking the fifth consecutive increase since May. This raises the possibility of EMIs on home, auto, and other loans increasing further.
This time, however, the pace of increase was slower than usual. The four previous increases were 190 bps. The last three hikes were 50 bps. RBI raised rates by 225bps, bringing the repo rate up to 6.25%.
Last month, the central bank, whose primary mission is to maintain price stability, wrote a letter explaining how global factors had contributed to its inability to maintain inflation below the target area for three consecutive quarters. It also provided a roadmap for price increases within the target zone.
While the RBI maintained its March 6.7% inflation forecast, it lowered the economic growth forecast to 6.8%, compared to the 7% previously forecast.