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Retail inflation cools to 13-month low bolstering rate cut hopes

Chillicious Bureau

India’s retail inflation grew 4.31 percent in September, its slowest pace since August last year, bolstering hopes of another round of interest rate cut in the coming months.

The consumer price index (CPI)-based retail inflation, which measures changes in shop-end prices, has fallen from a two-year high of 6.01 percent in July.

Food price inflation fell to 3.88 percent in September—the lowest in a year–from 5.91 percent in August from 8.35 percent in the previous month as fresh supply of seasonal vegetables pushed down prices.

Latest data released on Thursday showed that growth in prices of pulses, a common source of protein for most Indians, have slowed down considerably.

Retail pulse prices grew 14 percent in September from 22.01 percent in August compared to 27.75 percent in July.

Over the last two years, the RBI and the government have been battling to cool prices of pulses.

Prices of pulses have come down from a five-year high in some parts of the country on the back of a weather-induced supply shocks in the last two years.

Arhar or tur dal, which was retailing at about Rs 200 a kg in some parts of the country, have become cheaper on the back of higher lentil output.

Area under pulses has increased by more than 50 percent to nearly 120 lakh hectares from 78.25 lakh hectares in the last season.

The government expects pulse production to increase to 20 million tonnes in the 2016-17 crop year (July-June) from about 17 million tonnes in the previous year and that would help it to control the high retail prices.

Decoding | Ahead of Urjit Patel’s first monetary policy as RBI Governor, we take a look at how interest rates work.

— moneycontrol (@moneycontrolcom) October 4, 2016

Earlier this month, the RBI cut its key lending —the repo rate—by 25 basis points to 6.25 percent, as a newly set up panel felt that inflation levels were low enough to reduce loan rates.

The six-member monetary policy committee (MPC), headed by new RBI governor Urjit Patel unanimously agreed that inflation was unlikely to gallop past the tolerance threshold of 6 percent in the near future.

The MPC expects retail inflation rates to hover around 5 percent by March 2017

The drop in overall inflation rates has been primarily aided by continuous drop inflation in food inflation.

Analysts have credited the drop in food inflation to recent efforts by the government to keep price growth in check including measures to tame prices of pulses

The RBI and the government have set a retail inflation target of 4 percent for the next five years with an upper tolerance level of 6 percent and lower limit of 2 percent.