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Retail Inflation Data For June Records Lowest Levels of 1.54%


The retail inflation figures reported by CII or consumer inflation index revealed yesterday recorded lowest levels of 1.54% as against 2.18% reported for the month of May. The recorded inflation levels are lowest since the year 1999 when the series was quite different and provide a much needed room for the RBI to take on interest rate cuts.

 Retail Inflation Data For June Records Lowest Levels of 1.54%

As against the inflation number for the same month last year stood at 5.77%. Low inflation numbers are also a reflection of the weak economic activity as well as subdued demand.

On the back of sustaining such low inflationary levels, Chief Economic Advisor Arvind Subramanian in a statement said "1.54 percent is historically low and reflects the firm and ongoing consolidation of macro-economic stability...this low heartening number has been consistent with our analysis for sometime now".

"Clearly, this low number and what it implies about underlying price something that I am sure, all policy makers will reflect upon very very carefully," he said.

Consumer food price inflation that measures change per se kitchen expenses on a month on month basis stands at (-)2.12% in June as against 0.69% in May. The steep fall is on account of disinflation in the price of vegetables and pulses. Housing inflation remained almost changed at 4.7% in June as against 4.84% in May. Fuel inflation also lowered to 4.84% in June.

Know what is disinflation, here.

At a time, when the country has transitioned to a landmark taxation regime, its impact on CPI inflation level is likely to be witnessed.

However, rating agency ICRA holds the view that GST shall not result in the spike in CPI levels. And in respect of businesses and traders, they may check the impact of GST on the final prices after quite some time before effecting the changes in the final prices of different goods and services.




Despite a mid-year switchover to GST had prompted shops to de-stock and clear up the inventory pile through discounts and rebates ahead of July 1 when the new system kicked in, clothing and footwear inflation marginally fell to 4.17 percent in June from with 4.41 percent in May.

According to Nayar, the final impact of the GST on inflation may not be known immediately as a number of businesses may choose to observe the impact of the GST on final prices over a period of time, before revising prices.

"Nevertheless, ICRA does not expect GST to result in a spike in the CPI inflation levels," she said.

The inflation number is now below the range of the Reserve Bank of India's (RBI) forecast for the current financial year, opening scope for a rate cut on August 2 by the apex bank. Last month, the RBI lowered the headline inflation expectation for 2017-18 to 2.0-3.5 percent for April-September first half, down from 4.5 percent earlier and 3.5-4.5 percent for the second half, down from 5 percent in its previous forecast.

"With headline inflation breaching the 2 percent threshold and the broad-based easing in the previously sticky core inflation in June 2017, the balance is tilted towards a 25 bps repo rate cut in the next bi-monthly meeting of the Monetary Policy Committee (MPC) to be held in August 2017," Aditi Nayar, Principal Economist, ICRA said.

"Nevertheless, the MPC's decision may not be unanimous, as some members may choose to focus on the expected rise in CPI inflation post August 2017 rather than the lower-than-expected prints over the last several months," Nayar said.

The year-on-year CPI inflation eased sharply to a series-low 3.0 percent in April 2017, due to food inflation. Inflation numbers continued to plunge to lower levels through May and June.

Story first published: Thursday, July 13, 2017, 11:42 [IST]
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