Retail inflation marginally higher at 2.57% in February

India’s retail inflation grew 2.57 percent in February, marginally higher than the previous month’s 2.05 percent, and sharply lower than 5.07 percent in the same month last year, primarily aided by low food prices.

The latest price data released by the Central Statistics Office (CSO) on March 12 showed that consumer price index (CPI)-based inflation, which measures changes in shop-end prices, remained comfortably within RBI’s target level of 4 percent.

Consumer food price inflation, which is a broad gauge changes in household kitchen budgets, recorded de-growth of 0.66 percent compared to 2.17 in the last month.

The headline retail inflation rate, which the RBI tracks for interest rate decisions, is currently barely above the Reserve Bank of India (RBI’s) lower tolerable limit of 2 percent.

This, coupled with a deceleration in GDP growth rate to 6.6 percent in October-December, could prompt the RBI to lower lending rates in policy review next month, which could eventually bring down borrowing costs for individuals and corporates.

A persistent moderation in prices of eggs, fruits, pulses, sugar and confectionary have helped keep food inflation low, which has helped cool down overall inflation rates.

The RBI on February 7 lowered the repo rate—its key lending rate—by 0.25 percentage points to 6.25 percent and changed its stance to “neutral” from “calibrated tightening”, signalling higher chances of more cuts in the coming months if inflation persisted within tolerable limits.
The central bank is of the view that the headline inflation will likely persist within percent. In its monetary policy review last month, the RBI had projected that consumer price inflation, the primary price gauge that it tracks for interest rate decisions, will be around 3.2-3.4 percent during April-September 2019, reflecting the current low inflation levels and benign food price outlook.

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