January retail inflation seen easing only slightly, still above target: Reuters poll

Bengaluru: Retail inflation in India eased only slightly last month from a 17-month high hit in December, according to a Reuters poll, offering scant relief to policymakers mindful of the tentative economic recovery.

The Reserve Bank of India (RBI) kept its key policy rates unchanged on Wednesday and retained its “neutral” stance in an attempt to maintain a delicate balancing act and nurture growth.

But the central bank raised its inflation expectations for the fiscal year starting in April on surging oil prices and after the government announced an increase in rural and healthcare spending in its budget, which would be inflationary.

“There are upside risks to inflation, primarily stemming from higher minimum support price (MSP) for kharif crops as stated in the union budget, increase in customs duties, and fiscal slippage,” said Nikhil Gupta, research analyst at Motilal Oswal.

The latest poll of 26 economists showed consumer prices were expected to have risen 5.14% last month from a year ago, down marginally from December’s 5.20% but still well above the RBI’s medium-term target of 4%.

“CPI inflation likely eased in January, driven by a seasonal correction in prices of perishable food items. However, the statistical impact of an unfavourable base will keep the year over year print above 5%”, said Shashank Mendiratta, economist at ANZ.

Wholesale price inflation also likely eased in January, to 3.25% from a year ago, compared to 3.58% in December.

Still, the central bank is expected to keep rates on hold at least until the second half of 2019, but would consider a hike if inflation breached 6.0%, the upper limit of its inflation target, a poll taken ahead of the RBI’s policy 7 February meeting found.

Highlighting growth concerns, the latest poll also showed industrial production expanded at a slower 6.2 % pace in December from 8.4% in November.

Output in eight core industries, which account for nearly 40% of India’s industrial output, grew 4.0% year-on-year in December, compared with 7.4% growth in November, official data showed. Reuters