CPI Inflation has eased to the lowest rate since Jan 2012, at 8.79%. The trend is definitely down and nearly all of it is due to the huge drop in food prices.
Data on wholesale price inflation (WPI) will come on Friday but nowadays it is the CPI that is more important.
Let’s look at components: the big down-mover has been food which is at 9.9%. You’re probably thinking I’m crazy – how is food inflation at 10% a good thing? The answer: I don’t really know, but I suppose it’s the difference between falling from a 15th storey balcony and from the 2nd floor – in one case it’s surely death and in the other, there’s a chance, but in both there’s too much pain.
Housing remains at 10%, and Education and Medical costs have gone up more. Strangely, Transport costs are at 7.4% which sounds less because we’ve had all these diesel price increases since last Jan.
The aim is to get the CPI Inflation rate to 8%, according to the Urijit Patel Committee Report. This was to have been done within 12 months, but it looks like we’re getting close already!
But bringing it to 6% and sustaining (which is a stated goal) will remain a challenge because when you take out food and fuel, we’re still running at 8% or so. One of the key elements in the fight against inflation is to cut inflation expectations in the future. It cannot be just to bring down inflation to a level that sounds nice (8%) but in reality it’s not low enough to keep expectations low.
While markets may rejoice tomorrow on hopes of a rate cut, it looks unlikely, even though growth has been impacted. At best rates remain at the 8% bound in April, and remain there until inflation sustains below 8% consistently.