Inflation to go below 4.5% by July: CEA Krishnamurthy Subramanian

CEA Krishnamurthy Subramanian
Chief Economic Advisor Krishnamurthy Subramanian on Thursday said that he expects consumer price index (CPI)-based inflation to come down to sub-4.5 per cent levels by July, a day after headline inflation was stated to have touched its highest level in 68 months.


Speaking to reporters, Subramanian said that vegetable prices in general, and onion prices in particular, are expected to moderate after a fresh harvest in March. “I expect the headline inflation to converge back to core around July-August. Headline inflation should be around 4.2-4.5. The convergence should happen by July,” Subramanian said.


Retail inflation for January came in at 7.59 per cent, according to the official data released on Wednesday. The food inflation rate remained elevated at 13.63 per cent. For December, CPI inflation was 7.35 per cent and food inflation was at 14.19 per cent. The inflation rate in vegetables for January came down from 60 per cent in December, but it still stood at 50 per cent. Pulses saw the inflation rate rising to 16.71 per cent in January, from 15.44 per cent in December.


According to Subramanian’s assessment, core inflation (headline retail inflation minus food and fuel) stood at 4.2 per cent. “If you take the difference between headline inflation and core inflation, headline is 7.6 per cent and core is 4.2 per cent. Of the difference of 3.4 per cent, about 2.45 per cent, or 70 percentage points, comes just from onion,” he said, adding a moderation in onion prices was expected after a fresh harvest in March.  “If you look at the historical data, when food inflation falls, your headline inflation becomes lower than core inflation, and when food inflation rises, headline goes above inflation. When you look at inflation dynamics, core gives you the more stable portion.”


Subramanian said the Reserve Bank of India’s revised inflation assessments were realistic. According to its latest Monetary Policy statement, the central bank sees CPI inflation at 6.5 per cent for January-March 2020, and 5.4-5 per cent for April-September.


The RBI predicted that food inflation was likely to soften from the highs seen in December with the arrival of new harvest and higher vegetable production, and that crude oil prices may remain volatile. Subramanian said that there was a greater downside risk to the latter.


 Subramanian said that India’s economy may not be severely affected by the coronavirus epidemic.


“If you go back and look at the SARS outbreak in 2003, India’s economic prospects were not affected that much.”

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