Slowing retail inflation may give RBI room to cut rates

Retail inflation slowed to a 19-month low in January on the back of sliding food prices, while industrial output rebounded in December but remained sluggish, providing headroom to the RBI to cut interest rates, when it next reviews monetary policy.

Data released by the Central Statistics Office (CSO) on Tuesday showed inflation as measured by the consumer price index, slowed to 2.1% in January, near last month’s level and its eight decline in a row. It remained below the central bank’s comfort level. The food price index contracted 2.2% in January. Rural inflation was at 1.3% and urban at 2.9%.

“We expect that the inflation will remain benign in the upcoming months aided by deflation in food articles and subdued prices of fuel and light along with high base effect. Housing inflation is also likely to decline further with abating impact of 7th pay commission implementation,” said Rucha Ranadive, economist at Care Ratings.

Separate data, released by CSO, showed industrial output growth rebounded in December rising by 2.4%, faster than the previous month’s 0.5% expansion but slower than the 7.3% growth in December 2017. But April to December growth was at 4.6%, higher than the 3.7% expansion during the same year-ago period.