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Consumer Inflation Eases To Lowest Level In Nearly A Year-And-A-Half

Wednesday's data supports the central bank's decision to hold interest rates in its policy statement earlier this month.

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Consumer Inflation Eases To Lowest Level In Nearly A Year-And-A-Half

November marked the 4th consecutive month in which inflation was within RBI's medium-term goal of 4%.


Highlights

  1. Consumer inflation below RBI's medium-target for fourth straight month
  2. Rate in price increase was last below 2.33% in June 2017
  3. Wednesday's data supports RBI's move to hold key rates earlier this month

Consumer inflation eased to 2.33 per cent in November, provisional data from the government showed on Wednesday. This marked the lowest level of consumer inflation recorded since June last year, when it stood at 1.46 per cent. Determined by Consumer Price Index (CPI), the rate of increase in prices was better than economists' estimates. Retail inflation was expected at 2.80 per cent in November in a poll of 40 economists conducted by news agency Reuters. Consumer inflation stood at a final 3.38 per cent in the previous month, the Central Statistics Office (CSO) said in its statement.

November marked the fourth consecutive month in which inflation was within the Reserve Bank of India (RBI)'s medium-term goal of 4 per cent. Wednesday's data supported the central bank's decision to hold interest rates in its policy statement earlier this month.

The central bank, which primarily tracks CPI to decide its monetary policy, had in December lowered its consumer inflation projection to 2.7-3.2 per cent for the second half of the current fiscal year, citing normal monsoon and moderate food prices. The RBI had maintained status quo in monetary policy announcement, leaving the key interest rate unchanged at 6.5 per cent.

Wednesday's data fuelled hopes of a change in stance by the central bank in its February policy review, say experts.

“While it is too early to assess whether a rate cut would be forthcoming in the February 2019 MPC (Monetary Policy Committee), there is a significant likelihood of a change in the monetary policy stance back to 'neutral' from 'calibrated tightening',” said Aditi Nayar, principal economist at credit ratings agency ICRA. (What experts say)

The RBI had in October changed its policy stance to "calibrated tightening" from "neutral", indicating that a rate cut was off the table.

Meanwhile, separate data on Wednesday showed growth in factory activity, measured by Index of Industrial Production (IIP), was at a better-than-expected 8.1 per cent in October. Industrial output growth was expected at 5.7 per cent for the month, according to a Reuters poll. October's growth was almost double that of a downwardly revised 4.47 per cent in September, the data showed.

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