Published: Wed, March 14, 2018
Business | By Tara Barton

Consumer Prices Show No Signs of Inflation Dangers

Consumer Prices Show No Signs of Inflation Dangers

It estimates the headline inflation for financial year 2018-19 at a high 4.6 per cent on rising consumption demand, house rent allowance revisions and elevated crude prices.

The cumulative Index of Industrial Production (IIP) growth for the April-January period of the current fiscal over the corresponding period of the previous year stood at 4.1 per cent, the CSO said.

The release added, "The all items index rose 2.2 percent for the 12 months ending February, a slightly larger increase than the 2.1-percent rise for the 12 months ending January".

Retail inflation, as measured by the Consumer Price Index (CPI), eased to 4.4% in February, following two months of figures above 5%. In fact, the exceptional 1.7% increase in prices for clothing observed in January - the highest monthly increase since February 1990 - was probably owed to the winter weather, whereas price discounts were more likely again in February given the mild temperatures.

Inflation in India dropped below 5% for the first time in three months, giving the central bank room to keep interest rates on hold for longer while providing relief to battered bond investors.

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The news could help ease volatility on Wall Street, where fears of inflation and rising rates have spooked investors in recent weeks. Besides, industry bodies yet again nudged RBI to lower interest rate as retail inflation fell to a 4-month low. Economists expected a 2.3% increase in overall inflation and core prices to rise 1.9%.

Government data on Monday showed inflation at 4.44% in February, lower than the 5.07% pace in January. It is expected to show an increase of 0.2%, well below last month's 0.5% increase. However, the mining sector saw a flat growth of 0.1 per cent compared to 8.6 per cent a year ago.

Commenting on the IIP numbers, industry chamber Assocham described these as signs of "an underlying pick-up in the growth trajectory".

The yen tends to suffer in an environment when riskier and higher-yielding assets are bid but Morgan Stanley strategists said in a note that a further deterioration in the political situation that affected the position of Abe, could see the yen "forcefully return towards its previous upward trend". It looks like post-demonetisation and GST implementation finally the industrial sector is gaining traction.

Chandrajit Banerjee, director general, CII said: "The visible improvement in industrial output, which rose to 7.5 per cent at the onset of the New Year as against 3.5 per cent last year, augurs well for the return of broad based recovery in industrial performance during the year". In a report authored by SBI Group Chief Economic Adviser, Dr. Soumya Kanti Ghosh, the state-owned lender said the 7.5 percent jump was due to steep growth in manufacturing and electricity.

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