Economy
Retail inflation likely eased further to 3.9% in February: Mint poll
Summary
After struggling to keep inflation around 4%, the Reserve Bank of India may see a softer print ahead of its monetary policy meeting in April, which could make the expected delivery of another rate cut easier.India's retail inflation likely eased further to 3.9% in February from 4.3% in the previous month, driven by a continued decline in food prices, according to a Mint poll of 25 economists. This would mark the fourth consecutive month of cooling inflation and help make a case for another rate cut by the Reserve Bank of India (RBI) in April.
Economists polled by Mint projected the Consumer Price Index (CPI) inflation in a wide range of 3.6-4.4% in February. The official data is scheduled to be released on 12 March.
Food inflation, which accounts for nearly 40% of the inflation basket, has declined considerably over the last two months, owing to the arrival of the winter crops. Vegetable inflation, which had surged to nearly 40% in September and October last year—influencing headline inflation considerably—fell to 11.4% in January. The declining trend continued in February.
Meanwhile, core inflation, which excludes volatile food and fuel and light groups, is expected to inch up again in February but may not pose a risk.
"The reversal of spikes in volatile food items and fading of one-off shocks such as in edible oil prices suggests a continued fall in headline inflation, which is now undershooting RBI forecasts," said Abhishek Upadhyay, senior economist at ICICI Securities Primary Dealership.
If the poll prediction proves accurate, the average for January and February would be 4.1%, slightly lower than the RBI’s projection of 4.4% for the quarter ending March. Unless inflation in March rises to at least 4.7%, inflation for the quarter will undershoot RBI’s projection.
While inflation is continuously easing, gross domestic product (GDP) data released last month showed better growth in October- December. However, at 6.2%, growth was still significantly lower than the trend in recent years. As such, economists widely expected the RBI to deliver another rate cut in April.
“A moderation in CPI inflation below 4% should provide space for the Monetary Policy Committee (MPC) to lower rates by another 25 basis points in April to support growth," said Anubhuti Sahay, head of India economics research at Standard Chartered Bank.
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