Retail inflation dropped a tad to 4-month low of 5.09% in Feb

Decline in energy prices negated a rise in vegetable prices resulting in retail inflation based on Consumer Price Index (CPI) remaining almost the same in February as compared to January, data released by National Statistical Office (NSO) on Tuesday showed.

The retail inflation was 5.09 per cent in February, against the 5.1 per cent of January. The february numbers are the lowest in four months. However, food inflation moved up to 8.7 per cent in February (8.3 per cent in January). Meanwhile, core inflation declined to 3.34 per cent in February, lowest in 2012 base series.

With the latest numbers, it is expected that there will be no change in the Monetary Policy Committee’s (MPC) stance on policy repo rate. Change is expected only during the second half of the next fiscal. This is the sixth consecutive month of headline inflation remaining below the RBI’s upper tolerance level of 6 per cent. Also, this is 53rd consecutive week of the headline number above the median rate of 4 per cent. It may be noted that targeted inflation range is 2-6 per cent.

Last month, the RBI left its rates unchanged and signalled that it would not lower the interest rates until inflation reaches 4 per cent, on a durable basis. It expects inflation at 5.4 per cent for the current fiscal year, that ends on March 31, and has projected 4.5 per cent for the next fiscal.

The prices of cereals were 7.60 per cent higher year-on-year (y-o-y) in February, compared to the 7.83 per cent in the previous month, while vegetable prices rose to 30.25 per cent compared to 27.03 per cent in January. Pulse prices rose nearly 19 per cent y-o-y in February.

Commenting on the numbers, Swati Arora, Economist with HDFC Bank, said that CPI reading was unchanged in February as support from a favourable base effect and a moderation in core inflation (ex food and fuel) was offset by a rise in food inflation.  Vegetables inflation continued to be a pressure point. CPI excluding vegetables stood at 3.7 cent in February.

“On the policy front, given an upbeat Q3 GDP numbers and inflation print in line with RBI estimates (likely to average at 5 per cent in Q4 FY24), we expect the RBI to maintain status quo in its upcoming policy in April 2024,”Arora said.

Upasna Bhardwaj, Chief Economist with Kotak Mahindra Bank, said that the moderation in core inflation continues to provide respite. “We retain our view that RBI will remain cautious on volatile food inflation trajectory and hence prefer to remain in pause mode on rates till August policy. However, with RBI already having continuously fine tuning liquidity and easing overnight rates closer to repo rate, we see room for a shift in stance in the June policy,” she said.

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