The country’s retail inflation slipped marginally in January but was within the Reserve Bank of India’s target range for a second month as vegetable prices declined further, a Reuters poll predicted. The February 5-9 poll of 50 economists showed retail inflation fell to 4.45 per cent in January from December’s 4.59 per cent. If this holds true, inflation would be its lowest since October 2019 and within the RBI’s target zone of two per cent – six per cent. It stayed stubbornly high last year amid the coronavirus pandemic and breached the range for eight continuous months from April. “Inflation was expected to ease in January led by correction in vegetable prices,” said Sakshi Gupta, senior economist at HDFC Bank.
“However, the moderation is capped as cereals and pulses prices rose in the month. Moreover, there is likely to be some upward pressure due to rising crude oil prices.” The RBI expected inflation to remain within the range over the next few quarters but expressed concern over high core inflation and rising fuel prices at its meeting last week.
Also, a private survey showed cost prices rose across the manufacturing and services sectors, indicating inflation could move higher. “Undercurrents from higher input costs, commodity pass-through, demand impulses from a cyclical recovery and monsoon will influence the price trajectory,” said Radhika Rao, economist at DBS Bank in Singapore. The RBI predicted retail inflation to be between 5.0 per cent – 5.2 per cent in the six months from April.
That suggests the central bank would remain accommodative, supporting the government’s 12 trillion Indian rupees ($165.4 billion) borrowing programme for next fiscal year. “While the door for further rate cuts has been effectively closed, this year’s balancing act will be to continue with a calibrated approach to liquidity normalization as growth gains traction,” added Rao.
The pandemic-battered economy was expected to get a significant boost from the fiscal package and grow robustly next fiscal year, another Reuters poll found. The Monetary Policy Committee projected 10.5 per cent GDP growth in FY22, higher than the 9.5 per cent predicted in a Reuters survey a fortnight ago.
Asia’s third-largest economy was expected to contract eight per cent this fiscal year, its deepest slump in around four decades. The latest poll predicted industrial output contracted 0.2 per cent during December from a year earlier after all core industries shrank except coal and electricity. In November, it declined 1.9 per cent. Infrastructure output, which accounts for about 40 per cent of total industrial production, contracted 1.3 per cent in December.