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Rediff.com  » Business » Inflation slips to 18-month low of 4.7% in April, nears RBI's 4% target

Inflation slips to 18-month low of 4.7% in April, nears RBI's 4% target

Source: PTI
May 12, 2023 21:18 IST
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Retail inflation declined to an 18-month low of 4.7 per cent in April mainly due to falling prices of vegetables, oils and fats, and came closer to Reserve Bank's target of 4 per cent, showed government data released Friday.

Inflation

Photograph: Danish Siddiqui/Reuters

It was for the second month in a row that Consumer Price Index (CPI) based inflation remained within the RBI's comfort zone of below 6 per cent.

The government has tasked the central bank to ensure retail inflation remains at 4 per cent with a margin of 2 per cent on either side.

The retail inflation was 5.66 per cent in March 2023 and 7.79 per cent in the year-ago period.

 

Later month's inflation is the lowest reading since October 2021, when it stood at 4.48 per cent.

According to the National Statistical Office, the inflation in the food basket was 3.84 per cent in April, as against 4.79 per cent in March and 8.31 per cent in the year-ago period.

The food basket accounts for nearly half of the CPI.

Retail inflation rose from 5.7 per cent in December 2022 to 6.4 per cent in February 2023 on the back of higher prices of cereals, milk and fruits and slower deflation in vegetable prices.

As per the latest NSO data, prices of 'oil and fats' declined by 12.33 per cent, followed by vegetables (6.5 per cent), and 'meat and fish (1.23 per cent) during April on an annual basis.

On the other hand, spices, cereals and products, and 'milk and milk products' became dearer.

Commenting on the data, Aditi Nayar, Chief Economist, Head - Research & Outreach, ICRA said the April 2023 CPI inflation eased to an 18-month low, benefitting from the high base as well as cooler than normal temperatures, which delayed the seasonal rise in prices of perishable items.

"Although the impact of a favourable base effect related to escalation of geopolitical conflict is likely to have peaked in April 2023, ICRA foresees the CPI inflation to remain range-bound at 4.7-5 per cent in May-June 2023," she said.

With a dip in the CPI inflation below 5 per cent and surprisingly subdued IIP growth (March), "we foresee a high likelihood of a pause from the MPC in its next meeting", she said.

However, a pivot to rate cuts by the RBI appears quite distant, Nayar added.

Narinder Wadhwa, National President, CPAI (Commodity Participants Association of India) said a lower CPI inflation rate is seen as positive for consumers, as it indicates that the cost of living has increased at a slower pace and indicates that inflation is not a significant concern.

"This, in turn, can make borrowing cheaper, increasing the demand for loans and potentially leading to increased investment and economic activity.

"Good news for capital markets," he said.

The RBI primarly factors in the CPI data while arriving at its bi-monthly monetary policy.

RBI increased the benchmark lending rate by 250 basis points in six tranches since May 2022 in a bid to tame high inflation in the wake of the Russia-Ukraine war.

However, it went for a pause in its rate hike spree in April.

The NSO data further showed the retail inflation in the rural areas during April was 4.68 per cent and 4.85 per cent in urban areas.

The price data were collected from selected 1,114 urban markets and 1,181 villages covering all states/UTs through personal visits by field staff of Field Operations Division of NSO, an official release said.

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