Opinion
Mint Quick Edit | Inflation is down: Will interest rates follow?
Summary
- Retail inflation was 5.2% in December, down from 5.5% the month earlier. The hope is that it cools off further and India’s upcoming budget doesn’t stoke price pressures.
With inflation a bugbear for policymakers, it’ll be a relief that the year-end saw price pressures ease, even if only a bit.
Government data released on Monday showed that India’s consumer price index rose 5.2% from a year earlier in December, slower than the 5.5% rise in November.
December’s print is the lowest in four months.
Also read: Five years is a long time to live with 4%-plus inflation. It can leave a bitter taste.
Though it’s still above the 4% central target being pursued by the Reserve Bank of India (RBI), it raises hopes of a further cool-off that may make space to ease monetary policy.
Food prices, which had spiked after uneven rainfall during last year’s monsoon season, are starting to cool as supplies gradually normalize; India’s rate of food inflation declined to 8.4% in December from 9% in November.
Also read: Mint Primer | All about the inflation spike: how, why & when
This should help reduce overall price pressures, unless soft demand in the economy suddenly starts reversing.
With private consumption and investment both unsatisfactory, RBI may find it increasingly difficult to focus exclusively on price stability.
Yet, it’s fiscal efforts we should count on to promote growth. Next month’s budget will be watched closely for these.
And if its outlays don’t stoke inflation, it’ll be that much easier for RBI to reduce lending rates.
Also read: Inflation hump: Will it continue beyond October?
