Retail inflation at 3-months low, what respite it brings to aam aadmi: 5 points
The RBI, which could not meet the target of retail inflation for three consecutive quarters, has sent a report to the government on its failure to keep the inflation below 6 per cent.
Indicating easing of the price situation, retail inflation moderated to a three-month low of 6.7 per cent in October from 7.41 per cent in the preceding month. The inflation rate dropped mainly due to easing prices in the food basket, though it remained above Reserve Bank's comfort level for the 10th month in a row. The retail inflation, which the RBI factors in while deciding its periodic monetary policy, was 4.48 per cent in October 2021.
The fall in retail inflation would bring a huge relief to aam aadmi as they have been facing the brunt of skyrocketing food prices for long.
Notably, the RBI has been tasked to keep inflation at 4 per cent with a margin of 2 per cent on either side. The RBI, which could not meet the target for three consecutive quarters, has sent a report to the government on its failure to keep the inflation below 6 per cent, according to a PTI report.
How Inflation Has Impacted People
With inflation hovering above 6 per cent, it has imposed severe challenges on the lifestyle of the masses.
Subroto Sau, 42, a resident of south Kolkata, previously used to buy items in bulk for the entire month, but with the inflation soaring high, it became next to impossible for him to afford all the items at one go.
“With prices of rice and potato shooting sky high (for us), I can’t buy items in bulk any more. Thus, I buy in smaller amounts since March, so that we spend less. We have even curtailed on certain food items,” he added.
With inflation coming down for the first time in three months, experts decode what it means for the Indian economy and the masses.
1. Some Respite for the masses
The ministry and the economists pointed out that the cooling down of retail inflation has been primarily driven by the lowering of food, beverage and fuel inflation. Thus, it is likely that daily items will become affordable for the masses. Edible oils and fruits continued to decline on a M-o-M basis. A softer rise was seen in cereals and pulses. LPG prices were flat for second consecutive month and Kerosene (by PDS) prices were lower. “Core inflation too softened to 5.9 per cent from 6.1 per cent, due to dip in transport & communication segment, as fuel prices cooled down,” mentioned Sonal Badhan, economist, Bank of Baroda.
2. Favourable base effect
When changes in the CPI in the base month have a considerable impact on twelve-month measured inflation, this is commonly referred to as a base effect. “A large part of the decline in inflation came on the back of a favourable base effect from last year. On a sequential basis, food inflation edged up marginally in the month of October led up by a rise in vegetable inflation. That said, as we move into the winter months, food inflation is likely to moderate and along with a favourable base effect is likely to be supportive of headline inflation,” said Sakshi Gupta, principal economist, HDFC Bank.
3. Normalizing of consumption patterns
Services inflation is expected to remain firm as consumption patterns normalize, shifting from goods to services, suggest economists from IDFC First Bank. “Resilient domestic demand, also supported by the festive season could be a key reason for this. As we expect consumer demand to remain healthy in coming months as well, pressure on core CPI will be maintained,” added the economist from the Bank of Baroda.
4. CPI to come to 5% by 2023
Economists expect headline inflation to moderate between 6-6.5 per cent until February 2023 and thereafter drop to 5.5 per cent in March 2023 – coming in within the RBI’s target band. The recent appreciation in the rupee and expectation of range-bound movements in the near-term will contribute to the fall of the inflation trajectory as well.
5. Repo Rate hike expected
Despite the lowering of inflation, economists expect that the RBI will hike the repo rate again in December. “The RBI is likely to increase the policy rate by 25-35bps at its December meeting and deliver another 25bps rate hike in its February policy, taking the repo rate to 6.5 per cent. That said, today’s print does bring some confidence in the view that with inflation moving in line with the central bank’s expectations, it might be nearing the end of its rate hiking cycle,” added Gupta from HDFC Bank.
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07:14 PM IST