New Delhi: Retail inflation is expected to soften to 4.1% in October and ease further to sub-4% level by November-December, largely helped by favourable base effect, says a Citigroup report.

According to the global financial services major, CPI inflation is likely to slide further to sub-4% point by November-December before firming towards 4.5% by March 2017.

“October CPI inflation could decline to 4.1% from 4.3% last month as the impact from a favourable base effect more than offsets the sequential increase in CPI index," Citigroup said in a note. “We continue to see roughly 50 basis points downside to RBI’s interim CPI target of 5% by March 2017," it added.

The report noted that the sequential increase in food index in October was largely led by higher prices of gram pulse, sugar and cooking oil, which were possibly due to increased festival demand for these key ingredients. Outside food, fuel inflation could firm up in October with rise in petrol, diesel and kerosene prices, while core inflation trends are likely to remain stable at sub-5% levels, the report said.

On the Reserve Bank of India’s (RBI) policy stance, the report said that subdued inflationary pressure in the near-term could open room for an accommodative policy, but the December Federal Open Market Committee (FOMC) meet might weight on the central bank’s policy stance.

“The subdued trends in CPI inflation in the near term and diminishing risk of a Gooda and Services Tax-related jump in CPI inflation over medium term could tip the balance towards RBI frontloading its rate cut in December policy. However, we recognize the RBI policy comes just a week ahead of the December FOMC meet, which introduces some risk to our call," Citigroup said.

Monetary Policy Committee (MPC), which has three members nominated by the government and the rest from RBI, lowered repo rate to 6.25% from 6.50% at the end of two-day deliberations on 4 October. The next meeting of the MPC is scheduled on 6-7 December. PTI

My Reads Logout