CPI inflation likely to ease at 3.2%

Customers buy vegetables from a stall at a market in Ahmedabad
The consumer price index-based inflation is likely to come down in January to the lowest in the new series due to subdued demand post-demonetisation and base effect before spiking up again in the next two months. 

Aditi Nayar, a principal economist with ICRA, pegged the inflation at 3.2 per cent in the month compared to 3.4 per cent in the previous month. 

According to the poll of 26 economists by Reuters, the inflation rate for January slowed to 3.22 percent in January. 

However, Nayar said it is likely to be followed up by a sharp rise in the next two months as the base effect wears off.

Inflation was 5 per cent in October,2015  and then rose to 5.41 per cent in the next month, 5.61 per cent in December and 5.69 per cent in January, 2016. 

Because of these high inflation numbers the respective inflation appear smaller in October, November, December, 2016 and is also likely to be so in January, 2017. 

However, inflation in February 2016 fell to 5.26 per cent and 4.83 per cent in March. 

"We expect CPI inflation to rise to around 4.5 per cent in March, 2017," Nayar said. 

In December, vegetable saw decrease in prices by over 14 per cent. 

However, Nayar said perishable prices are likely to track a seasonal rise.

In fact, the Reserve Bank of India in its recent monetary review also said that transient factors including anecdotal evidence on fire sales of perishables have discoloured an objective assessment on inflation pressures.

For example, it said if vegetables are excluded, CPI inflation would exceed the CSO's official print for the month of December, which was of 3.4 per cent, by as much as 140 basis points. 

Inflation has been in the band of 2-6 per cent since August 2016, which is a mandate of monetary policy committee.

However, it was over 4 per cent in between and may again exceed 4 per cent by March. 

The RBI had said the committee is dedicated to achieving the target of 4 per cent CPI headline inflation, while keeping in mind the objective of growth.

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