INSUBCONTINENT EXCLUSIVE:
per cent in December from a year earlier, lowest level since June 2017, government data showed on Monday
The decline was helped by a fall in food prices and smaller increases in fuel costs
Analysts polled by Reuters had forecast December's annual increase in consumer price index at 2.20 per cent, compared with November's 2.33
estimate of 2.11 per cent
Led by continued contraction in food prices, softer CPI inflation was supported by contraction in fuel prices and housing in December
However, miscellaneous component led by education and health has inched up in December.""Going forward we expect further downside in our
average inflation projection of 4 per cent in FY19, closer to 3.5-3.7 per cent band
This paves way for monetary policy committee to not just change its stance to "neutral" but also mull over a possible rate cut
The inflation trajectory looks below 4 per cent over next quarter."Abhishek Upadhyay, senior economist, ICICI Securities Primary
Dealership"Inflation is exactly in line with our projections, but internals are weaker
Core inflation declined less than expected, despite a substantial drop in auto fuel prices
Key service segments including household goods, health as well as education have increased sharply on a sequential basis, and belie fears of
any sharp slowdown in growth
Food inflation still remains muted, but there was no big surprise after internals for previous months showed cereals prices fell by a
record, despite higher minimum support prices.""From a monetary policy standpoint, headline inflation is actually tracking slightly lower
than RBI's forecast for current quarter of 2.7 per cent
That makes it likely that RBI would change stance back to "neutral"
But elevated core inflation increases risk that headline inflation can surprise higher next year in case food inflation starts to pick up
again from current exceptionally low levels
This would preclude any proactive monetary policy easing from monetary policy committee in our view
Given that output gap has more or less closed despite recent soft patch in growth and there are risks that fiscal stance could turn more
stimulative in an election year, a cautious approach to any monetary policy easing is merited
Sharp RBI focus on alleviating any liquidity strains in banking system is correct approach to achieve easier monetary conditions at this
stage."Devendra Kumar Pant, chief economist, India Ratings Research"The CPI data over last five months has undershot RBI's target of 4 per
cent and this is mainly because of food deflation
Naturally lower oil prices have had its impact
Now if you look at core data which excludes food, energy, transport and communication, it has still remained elevated
In last 14 months it has remained in excess of 5.7 per cent
However, there was clearly a downward trend in core numbers compared to first quarter.""It is unlikely that government will make out any
broad policy announcements in FY20 budget
However, we will have to keep a close eye on what two major political parties announce in their election manifestos given 'competitive
populism' being flavour currently."Tushar Arora, senior economist, HDFC Bank"Another month of muted food inflation.""Going forward, for
another six to seven months, retail inflation is unlikely to breach central bank's target of 4 per cent
This certainly opens up room for a rate cut
If not in February, we could see a 25 bps (basis points) cut in policy rate by April.""Thereafter, if MSP (minimum support price) risk does
not materialise this year and assuming oil prices remain around $60 a barrel, there could be a possibility of second rate cut as well."Arun
prices as crude prices have cooled off
Given these conditions, overall inflation is expected to trend in comfort zone of central bank.""Currently, RBI (Reserve Bank of India) has
'calibrated tightening' as its stance and given deflationary forces it is likely to temper it down to neutral stance followed by a rate cut
of around 25 bps in near future i.e
Probably, at its February 2019 meet, RBI would mellow its stance to neutral and wait for April 2019 meet for reducing rates."Sharp rises in
crude oil prices would contribute to inflation along with impact of rising MSPs (minimum support prices)
Volatility in global financial markets continues to impart uncertainty to inflation outlook, thus being third key risk
The sharp rise in input costs, combined with rising pricing power, has potential to cause higher pass-through of retail prices for both
goods and services, thus stoking inflation.Any fiscal slippage at central or state level will have a bearing on inflation outlook, besides
heightening market volatility and crowding out private sector investment; this factor is of utmost importance, given that government would
likely announce some populous measures like universal basic income or input support scheme for farmers and landless labourers ahead of
general elections in its interim budget."
