Retail inflation eased to 4.06 per cent in January 2021, due to decline in vegetable prices, according to government data released on Friday. The inflation based on Consumer Price Index (CPI) was 4.59 per cent in December 2020. The rate of price rise in the food basket was 1.89 per cent in January, significantly down from 3.41 per cent in December, revealed the data released by the National Statistical Office (NSO). Analysts in a Reuters poll had predicted an annual inflation at 4.45 per cent for the month.
The number is within the Reserve Bank of India's comfort zone of 2 per cent to 6 per cent. The numbers were above the RBI's target zone for eight months from April 2020 despite demand slowdown due to the Covid-19 pandemic.
In January 2021, food inflation dipped sharply on a sequential basis to 1.89 per cent compared with 3.41 per cent in December 2020, according to Ministry of Statistics and Program Implementation (MoSPI) on Friday.
The Index of Industrial Production (IIP), which measures industry activity, in December 2020 grew 1 per cent compared with an expansion of 1.9 per cent in November 2020.
Aditi Nayar, principal economist at ICRA, says, “With inflation expected to resume an uptrend in February-March 2021, we do not think that the softer-than-anticipated print creates room for an imminent rate cut. Unless a cut in indirect taxes on fuels results in a sharp softening of the inflation trajectory, we expect the rate-cut cycle to have ended.
“We anticipate an extended pause for the repo rate through 2021, with the CPI inflation expected to average 4.6 per cent in FY2022, exceeding the mid-point of the MPC's (Monetary Policy Committee) target range of 2 per cent to 6 percent for the third consecutive year.”