India's January inflation pace drops; RBI could cut rates again

Retail inflation eases to 2.05% in January

Retail inflation eases to 2.05% in January

Retail inflation continued to slide, easing to a 19-month low of 2.05 per cent in January, with food inflation continuing to remain in the negative zone, separate set of data released on Tuesday showed.

Those differences may disappear as slowing economic activity is set to drag core inflation down and also as the pass through impact from food and fuel prices fades. The Reserve Bank of India, which reduced the key lending rate by 0.25 per cent last week, mainly factors in CPI-based inflation while arriving at its bi-monthly monetary policy.

Much of the current fall in food inflation is being driven by the vegetables segment, where inflation stood at -13.32 percent in January compared to -16.14 percent in December. The cumulative growth for the period April to December 2018 over the corresponding period of the previous year stood at 4.6%. Consumer inflation in December was revised downwards to 2.11 per cent from 2.19 per cent, according to the official statement. In January, food disinflation, or a fall in food prices, persisted for the fourth consecutive month.

Factory output growth slowed to 2.4 per cent in December from 7.3 per cent a year ago primarily due to slippage in output of manufacturing, mining and capital goods, data released by Central Statistics Office (CSO) Tuesday showed. B Prasanna, head, Global Markets Group, ICICI Bank said, "The CPI number surprised positively and core inflation also moved lower".

Prime Minister Narendra Modi, who faces tough general elections by May, has announced an annual transfer of 750 billion rupees ($11 billion) to millions of farmers, and tax benefits for the middle class, which many economists say could spur both consumer spending and inflation. "This has opened up space for policy action", RBI Governor Shaktikanta Das said last week. In rural areas, food prices fell 2.80% and in urban areas, it fell by 0.96%.

A Reuters poll after the MPC's February 7 rate cut showed a slim majority of economists see another rate cut before the election.

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