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India's retail inflation at 16-month low of 4.06% in January

CPI inflation is projected at 5.2% in Q4:2020-21, 5.2% to 5% in H1:2021-22 and 4.3% in Q3: 2021-22, RBI had said in latest policy statement.Premium
CPI inflation is projected at 5.2% in Q4:2020-21, 5.2% to 5% in H1:2021-22 and 4.3% in Q3: 2021-22, RBI had said in latest policy statement.

  • Data released by the statistics department showed that food inflation fell to a 20-month low of 1.89% as vegetable prices slumped 15.84% last month. Retail inflation in rural and urban India stood at 3.23% and 5.06%, respectively

NEW DELHI: A sharp drop in food inflation led to India's retail inflation easing to a 16-month low at 4.06% in January, justifying the central bank's accommodative monetary policy stance.

Inflation based on Consumer Price Index (CPI) was at 4.59% in December.

Data released by the statistics department showed that food inflation fell to a 20-month low of 1.89% as vegetable prices slumped 15.84% last month. Retail inflation in rural and urban India stood at 3.23% and 5.06%, respectively.

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The Reserve Bank of India (RBI) in its latest monetary policy statement had said with the larger-than-anticipated deflation in vegetable prices in December bringing down headline inflation closer to the target, it is likely that the food inflation trajectory will shape the near-term outlook.

“The bumper kharif crop, rising prospects of a good rabi harvest, larger winter arrivals of key vegetables and softer egg and poultry demand on avian flu fears are factors auguring a benign inflation outcome in the months ahead. On the other hand, price pressures may persist in respect of pulses, edible oils, spices and non-alcoholic beverages. The outlook for core inflation is likely to be impacted by further easing in supply chains; however, broad-based escalation in cost-push pressures in services and manufacturing prices due to increase in industrial raw material prices could impart upward pressure," RBI had said.

It had, however, cautioned that a dip in inflation could be short-lived with increased pass-through to output prices as demand normalises with firms regaining pricing power.

"Taking into consideration all these factors, the projection for CPI inflation has been revised to 5.2 per cent in Q4:2020-21, 5.2% to 5% in H1:2021-22 and 4.3% in Q3: 2021-22, with risks broadly balanced," it had added.

By March, the government plans to review the current inflation target of 4% within a band of 2 percentage points for the next five years.

"The experience with successfully maintaining price stability and the gains in credibility for monetary policy since the institution of the inflation targeting framework, barring the COVID-19 period, needs to be reinforced in the coming years even as we exit the pandemic and seek to exploit the opportunities of the post-COVID world," RBI governor Saktikanta Das had said in his monetary policy statement last week, while leaving policy rates unchanged.

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