New Delhi: Retail and wholesale inflation fell in February on the back of decline in food prices, raising hopes of an interest rate cut by RBI in April. With finance minister Arun Jaitley sticking to a tight fiscal deficit target of 3.5 per cent of GDP for 2016-17 in the Union Budget, RBI is already under pressure to cut interest rates to help industrial growth.
The wholesale prices fell for a 16th straight month in February, declining by an annual 0.91 per cent in February due to subdued prices of food items and petroleum products. Food inflation stood at 3.35 per cent in February compared with 6.02 per cent in January.
“Inflation at the wholesale level surprised positively for February by coming in at the same level as January as food prices declined sequentially. The downward pressure on inflation primarily came from vegetables and pulses within the food basket. Inflation in pulses has declined for the third consecutive month partly reacting to the improved supply on the back of huge imports by the government,” said Richa Gupta, senior director, Deloitte India.
Mr Gupta said that while inflation in pulses still remains high at around 39 per cent, “we would expect the figure to come down on the back of improved domestic supply, which is further likely to have a dampening effect on inflation.”
“Overall, the latest print on inflation is likely to give comfort to RBI and we could possibly see one more rate cut in the upcoming policy meeting,” said Deloitte.
Meanwhile, after rising for five months in a row, retail inflation in February fell to 3-month low of 5.18 per cent as food prices including vegetables, pulses and fruits became less costly.
“The CPI (retail) inflation print for February 2016 was softer than expected, benefiting from a sharp dip in food inflation even as core inflation rose to an extent. While prices of pulses and certain vegetables have declined in the first half of March 2016, the recent spells of heavy rainfall may cause prices of some food items to harden in the remainder of the month,” said rating agency ICRA, senior economist, Aditi Nayar.
“Commitment to fiscal consolidation by the Central government in conjunction with the three-month long contraction of industrial output and softer than expected headline inflation numbers have significantly bolstered the probability of a 25 basis points rate cut in the April 2016 monetary policy review,” she added.
