Retail Inflation marginally declined from the previous month’s 2.19% to 2.05% in January, recent data released by the Central Statistics Office (CSO) indicates. The fall in the retail inflation rate is seen as a effect of benign food inflation.
The food prices in the Indian market are falling continuously, the effect of which is so great that it has negated the surge in the core-inflation which as of now is at 6.04%, 0.4% higher then upper limit mandated by the MPC for core inflation.
If this trend of fall of food and pulses prices continues then retail inflation can cross the permissible lower tolerable limit Of 2% by the MPC.
Seeing such alarming situation MPC which met last week for its Bi-monthly meeting slashed the Repo Rate by 25 bps, hoping the move will spur growth and will consequently take inflation upward in the coming months. The MPC also shifted its policy stance to “Neutal” from the “Calibrated tightening” in its meeting.
“It is noteworthy that the path of inflation has moved downwards significantly, and over the period of the next one year, headline inflation is expected to remain contained below or at the target of 4 per cent. This has opened up space for policy action,” RBI Governor Shaktikanta Das said after MPC meeting.
As per the data by CSO, inflation for ‘fuel and Light’ also fell to 2.2% which was at 4.54% in December 2018. The government need to combat with these low inflation trends as these may be good for the urban middle class section, but has a very adverse impact on the earnings for farmers.