NEW DELHI: Retail inflation According to the CPI (consumer price index), November’s low of 5.88% was an 11-month high, according to data released by government on Monday.
For the first time in this year’s history, inflation numbers are within the Reserve Bank of India’s tolerance band of 2-6 percent. The RBI was given by the government the responsibility of keeping inflation under 2-4% with a margin to 2% for each side.
Retail inflation stood at 5.59% in December 2012. CPI numbers have continued to rise and reached an 8-year peak of 7.79% for April.
Retail inflation numbers have returned to the levels of February 2002, two months before Russia invaded Ukraine. This caused global food and commodity prices to soar.
India has seen a cooling in inflation for the second consecutive monthly. Also, October’s annual retail inflation was at a three month low of 6.7%. This was due to slower food price increases and a lower base effect, which strengthened bets for smaller rate hikes by the central bank.
The data come days after RBI reduced the pace of interest rates hikes. However, they promised to closely monitor inflation and take appropriate action if necessary.
‘Worst inflation over’
Shaktikanta Das, RBI governor, had presented his bimonthly monetary policy statement last Wednesday. While he stated that the worst inflation spike of this year was over, he warned that there was no room in his heart for complacency.
Das stated, “The MPC was convinced that additional calibrated monetary policies were warranted to keep inflation expectations stabilized, break core inflation persistence, and contain second round effect.”
Michael Patra, RBI deputy Governor in Charge of Monetary Policy, agreed with Das’s views. Patra said that the worst form of inflation was over but moderated it will be.
“The worst inflation is over,” Patra said, but moderate inflation will be slow and difficult. Patra stated, “We must first shepherd inflation into the tolerance band and then toward the target.”
He also stressed the importance and necessity of the smaller rate increase than at previous meetings. However, he said that the central banking was keeping an eye on inflation to see if there were any second round effects.
Ratio increases are more gradual
RBI raised the key repo interest rate by 35 basis point, the fifth consecutive increase since May. This increases the chances of EMIs for auto, home and other loans rising further.
The pace of the hike this time was slower than it was in the past. The increase totals 190bps. The three previous hikes were 50bps each. RBI has increased rates by 225 bps to bring the repo rate at 6.25%.
Last month, the central banking, whose primary purpose is to protect price stability, wrote to the government explaining how global influences contributed to its inability keep inflation under the target zone for three consecutive quarters. The central bank also gave a roadmap to achieve price growth within the target range.
The RBI maintained its March 2016 inflation forecast of 6.7%, but it reduced the expectation for economic growth to 6.8% from the previous forecast of 7%.