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Business
13 Apr 2017

Headline inflation is up, but don't expect rate hike soon

The Inflation story needs a proper monsoon ending

While RBI withheld its decision to revise the policy rate due to impending monsoon, headline inflation swelled up to a 5 month high, failing to contain rising fuel prices.

Consumer prices saw an annual high of 3.81% compared to the 3.65% rise noticed in February last year.

Although things are getting a bit bumpy, analysts are not expecting a rate hike anytime soon.

In context

The Inflation story needs a proper monsoon ending
Retail fuel Inflation has risen but verdict yet to come

Fueling worries

Retail fuel Inflation has risen but verdict yet to come

Retail fuel inflation reached 5.56% in March from a manageable 3.90% in February.

It is yet to be seen that how the rolling of the new GST policy affects retail fuel prices. Also the switch of BS-III to BS-IV variants will also have a say on the rising inflation in the coming days.

Revision

Daily revision of fuel prices on a pilot basis

The practice of daily revision of fuel prices is slated to begin on a trial basis from May.

Puducherry, Visakhapatnam, Udaipur, Jamshedpur and Chandigarh are five cities in which the change will be rolled out initially and would be spread out nationwide soon.

The current practice among the state-run fuel retailers, is to revise fuel prices on the 1st and 15th of each month.

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As of now it's too early to predict on monsoon

Rainfall

As of now it's too early to predict on monsoon

India's economy has always been jumpy about monsoons, as more than half of the farmlands do not have access to proper irrigation.

Monsoon brings in about 70% of the annual rainfall and the fear of El Nino-like conditions has made RBI cautious.

However, scientists are not convinced on the prediction and once the official forecast is released, debates will be put at rest.

Agricultural aspect

Monsoon is going to have the final say

Gains in food prices have fallen to 1.93% from the erstwhile 2.01%.

While the consumer price inflation is hovering at 4.8-4.9%, expectation of a below average monsoon looms highly over the horizon.

India is still a largely agrarian economy and it goes without saying that monsoon will not only lead to the rise in food prices but will also affect the entire inflation rate.

RBI's growth projection for current fiscal

Rate hike

RBI's growth projection for current fiscal

The economy is still reeling from demonetization and some adverse effects are expected to hit the present quarter.

The RBI's revised projection is expecting a headline inflation of 4.5% in the first half and 5% in the second half.

It is to be noted that analysts are not expecting a rate hike to take place in the near future.

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