Bengaluru: December retail inflation is expected to have eased to its lowest since June 2017 as food costs fell and fuel prices rose at a slower pace, a Reuters poll showed, giving the central bank breathing space to keep policy on hold.
Inflation likely cooled to 2.20 per cent in December – close to the lower end of the Reserve Bank of India’s medium-term target range of 2.0-6.0 per cent – according to the Jan 3-9 poll of 41 economists. In November, inflation was at 2.33 per cent.
“Food prices fell more in December. Which maybe just a seasonal thing, but I see that as the main factor, a potential downside factor for inflation,” said Prakash Sakpal, Asia economist at ING.
If the latest consensus is realised it will mark the fifth month in a row consumer price inflation has held below the mid-point of the RBI’s target band.
Forecasts ranged between 1.80 per cent and 3.00 per cent, and suggested price pressures are easing off from earlier in 2018.
“Inflation has at least in the second half of 2018 surprised on the downside. I think it is common knowledge now that it is mainly driven by food prices,” said Radhika Rao, an economist at DBS Bank.
“In fact, the food and beverages component in itself has been in disinflation. December will be the third month running, where prices have actually declined year-on-year.”
Cooling inflation expectations have also been driven by lower oil prices and a rupee currency that has managed to stabilise after a steep sell-off.
Crude oil prices are down over 30 per cent since Oct 3, when it hit the highest in almost four years, and the rupee has bounced nearly 6 per cent after touching a lifetime low of 74.48 on Oct 11.
According to separate Reuters polls, the rupee is not expected to depreciate sharply from here and oil prices are predicted to rise just modestly this year.
Those expectations should keep inflation in check. And given concerns about a slowing economy after growth cooled sharply in the July-September quarter, the RBI is likely to hold interest rates next month and move to a more dovish stance, economists say.
“We expect them (the RBI) to move from ‘calibrated tightening’ to ‘neutral’, so a change in stance is very much on the cards,” said DBS’s Rao.
“But I don’t think they would go ahead and cut rates in February, but dovish language would keep the door open for easing in subsequent meetings.”
