Core inflation moves up slightly but unlikely to be cause of concern in the near future

India Infoline News Service | Mumbai | October 14, 2016 08:46 IST

Importantly, the decline in inflation is on the back of a decline in vegetable prices while overall food inflation has also come down.

The latest retail inflation print is likely to give the central bank some comfort after its latest cut and opens up a possibility of another cut in rates in December. Further, stability in food prices in the coming months is likely to give credence to the fact that the momentum in food inflation has witnessed a downward shift in the near term as stated by the RBI in its last policy meet. Importantly, the decline in inflation is on the back of a decline in vegetable prices while overall food inflation has also come down.

This possibly shows that the positive effects of a good monsoon have started to flow through the economy. Further, prices of pulses have also declined leading to a sharp fall in inflation essentially responding to some policy action. That said, core inflation seems to have moved up slightly but is unlikely to be cause of concern in the near future. Overall, the trajectory of inflation is in line with expectations of decline and have increased the chances of the RBI meeting its target of 5% inflation by March 2017.

The author is Rishi Shah, Economist, Deloitte India.
 
 

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