Retail inflation at sub-4% for 12th month in a row
Our Bureau New Delhi | Updated on August 13, 2019 Published on August 13, 2019 BUSINESS LINE
Reflects low consumer demand; MPC gets more space to cut rates further
Barring meat, fish and pulses, the prices of various commodities still appear to be subdued as rate of retail inflation is still below four per cent for 12 months in a row.
The retail inflation rate based on consumer price index (CPI) dropped in July to 3.15 per cent as against 4.17 per cent in July 2018. The drop was less when compared with the sequential month June, when it stood at 3.18 per cent.
This means that rate level is still below targeted inflation rate of 4 per cent with 2 per cent movement in both the direction. This also gives further elbow room to the Monetary Policy Committee (MPC) to reduce the policy rate, better known as repo rate (it is the rate at which Reserve Bank lends money to scheduled commercial bank for a short period). The MPC lowered this rate by 110 basis points (100 basis points mean 1 percentage point) during four successive policy review.
The rate of retail inflation in July saw reduction mainly on account of fruits and sugar and confectionery. However, prices of meat & fish besides pulses are on the rise as rate of retail inflation for the former was over 9 per cent while for latter, it was nearly 7 per cent. These two pushed the rate of retail inflation for food products (CFPI) to 2.36 per cent in July from 2.25 in June.
Lower retail inflation on a sustained basis is not good for the growing economy like India’s as it shows that consumption demand is low. This will affect the production cycle and eventually impact investment demand.
It may be noted that the rate of producers’ inflation, technically known as wholesale price index (WPI), registered 2.02 per cent in June. The number for July will be out on Wednesday.
Published on August 13, 2019