CPI Inflation may ease in Sept, owing to good Kharif harvest; Room for another 'status quo' in RBI policy

The inflation remains elevated for the fifth consecutive month against RBI's target of 4%.

Sep 16, 2020 04:09 IST India Infoline News Service

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India's retail inflation or consumer price index (CPI) was on a muted level at 6.7% in August 2020, compared to the previous month. Notably, the latest inflation rate was lower compared to CARE Rating's estimate of 7%. However, the inflation remains elevated for the fifth consecutive month against RBI's target of 4%.

CARE Ratings in its research note said, "Elevated inflation in the food components and the miscellaneous segment continues to keep retail inflation high."

Meanwhile, core inflation spurted to 22-months high of 5.8% in August 2020, while the core inflation for July 2020 was revised lower to 5.7%. CARE says, " This rise in core CPI has been largely on account of the miscellaneous segment (especially personal care and transportation)."

Going forward, "Retail inflation could see easing in the next month especially in case of food inflation owing to a good Kharif harvest and easing of lockdown restrictions in the economy. Despite the moderation, food inflation will remain elevated. Core inflation is likely to remain sticky in the next month on account of high inflation in the miscellaneous segment."

In regards to RBI policy, CARE said, "Quite clearly the MPC will keep this number at the back of the mind when evaluating its decision in the next meeting. Inflation is well above the threshold of 6% while growth has slipped quite sharply. The liquidity situation is comfortable while bank credit growth has been negative. Under these conditions, the decision may steer towards another pause in policy action."

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