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  Business   Economy  13 Jul 2017  Inflation drops to 18-year record low

Inflation drops to 18-year record low

THE ASIAN AGE.
Published : Jul 13, 2017, 4:19 am IST
Updated : Jul 13, 2017, 7:00 am IST

Industrial output slowed down to 1.7 per cent, reviving calls for a rate cut.

Retail inflation captures prices which consumer pay at retail shops.
 Retail inflation captures prices which consumer pay at retail shops.

New Delhi: India’s retail inflation fell to historical 18 years low of 1.54 per cent in June as food prices in the country crashed following good rains. The industrial production also slowed down to 1.7 per cent in May putting pressure on RBI to cut interest rate during its monetary policy review next month to revive growth when inflation is low. Retail inflation captures prices which consumer pay at retail shops.

Chief economic adviser Arvind Subramanian, who has been critical of RBI for not cutting interest rates, took the opportunity offered by fall in inflation to blast critics and asked RBI policy makers to look at the data “very very” carefully. The central bank has kept its key policy rates on hold citing risks to inflation.

In a hard hitting statement, Mr Subramanian said: “This low, heartening (inflation) number is consistent with our analysis for sometime now of a paradigm shift in the inflationary process to a low level of inflation — a shift that I think has been missed by all reflected in the large, one-sided and systematic inflation forecast errors that have been made.”

He said retail inflation at 1.54 percent reflects the firm and ongoing consolidation of macro-economic stability. 

Mr Subramanian said that last time “we saw such inflation, according to a slightly different CPI series (IW), was in 1999 and before that in August 1978.”

“Clearly this low number and what it implies about underlying price pressures — as well as the latest industrial production data just released — is something that, I am sure, all policy makers will reflect upon very very carefully,” added the chief economic adviser.

According to the data, retail food prices contracted by 2.12 percent in June. Vegetables prices contracted by 16 percent and pulses by 21 percent as a result of good rains. Prices of spices and eggs saw a marginal drop in June. However, prices of milk rose by 4.15 and fruits by 2 per cent.

Due to good monsoon predicted this year, food prices could further go down in coming days. There had been protest by farmers last month in some parts of the country over not getting good prices for their crops.

Rating agency ICRA, Principal Economist Aditi Nayar said  inflation is expected to remain below two per cent in July 2017 too,  which is the lower threshold of the RBI’s inflation target band of 2-six per cent. She said “the balance is tilted towards a 0.25 percent repo rate cut in the next bi-monthly meeting of the monetary policy committee (MPC) to be held in August 2017.”

Tags: retail inflation, arvind subramanian
Location: India, Delhi, New Delhi