India’s retail inflation in March eased to 5.91% from 6.58% in the preceding month, due to sharp fall in food prices even as analysts expect the Covid-19 outbreak to further weigh on the print beginning April.

Data released by National Statistical Organisation on Monday showed food inflation declined to 8.76% in March from 10.81% in February. Retail inflation falls below the Monetary Police Committee’s (MPC) targeted upper band of 6% for the first time since November 2019.

The Statistics Ministry said impact of missing CPI data, owing to nationwide lockdown, is within acceptable limits.

“Keeping in view the preventive measures taken by NSO and announcement of nation-wide lockdown by the Government to check spread of COVID-19 pandemic, the field work for price collection of Consumer Price Index (CPI) was suspended with effect from 19th March, 2020 and about 66% of price quotations were received. For assessing the price behavior of remaining price quotations, NSO follows well established and internationally accepted methodology and practices. The overall impact of missing price data on estimates of General CPI at national and state level and CPI for Sub-Groups, Groups at All India level are within acceptable limits,” the Ministry said in a statement.

An array of forward-looking indicators by the Reserve Bank of India (RBI) is pointing to a much softer inflation trajectory going ahead. Three months and one year ahead median inflation expectations of urban households softened by 10 bps and 20 bps, respectively, in the March round of the survey conducted by the RBI while the proportion of respondents expecting the general price level to increase by more than the current rate also decreased for both three months and one year ahead horizons significantly. Professional forecasters surveyed by the RBI in March showed retail inflation to ease from 6.6% in February to 5.3% in the June quarter of FY21 and 3.2% by March quarter of FY21.

RBI, in its Monetary Policy report, said food prices may soften under the beneficial effects of the record foodgrains and horticulture production, at least till the onset of the usual summer uptick while the collapse in crude prices should work towards easing inflationary pressures, depending on the level of the pass-through to retail prices.

“Taking into account initial conditions, signals from forward-looking surveys and estimates from time series and structural models, CPI inflation is tentatively projected to ease from 4.8% in Q1:2020-21 to 4.4% in Q2, 2.7% in Q3 and 2.4% in Q4, with the caveat that in the prevailing high uncertainty, aggregate demand may weaken further than currently anticipated and ease core inflation further, while supply bottlenecks could exacerbate pressures more than expected,” it added.

The quality of crucial retail inflation data is likely to be compromised during the ongoing lockdown imposed to fight Covid-19 as restrictions on movement and closure of non-essential business establishments are hampering the efforts of investigators who are trying to collect information. Field investigators are to collect data of essential commodities either over telephone or during their visit to the nearest market for their own personal shopping, Mint reported on 9 April.

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