Consumer Price Inflation for Jun 2014 at Three Year Low of 7.31%

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Consumer Price Inflation gives us something to cheer about, while we shop for carrots at Rs. 75 a kg in Bangalore. CPI Inflation was at 7.31%, the lowest annual number since this index was released, and lower than last month’s 8.28%.

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If things don’t get worse, the slope of the inflation line was steeper from June 2013 onwards, so the lower base will make inflation look lower.

WPI Inflation had come down too, to 5.43% in June. So it’s like an across the board thing.

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Component wise, we see the biggest decrease was in Food, which fell to 8%. Everything else, too, has moderated, except for Transport and Household Items, both of which are below 7% inflation.

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Both Urban and Rural measures are now showing a slide down.

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This looks very positive, and it’s not just that food prices went down. The rest went down too, which you might consider more “core”.

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Impact: Interest rates, obviously. The feeling is that they will come down. There’s an RBI meet on August 1. But also obviously prices of food have spiked in July due to a horrible monsoon, and veggie prices just went through the roof. This can spoil the party, and cause the RBI to wait.

If that’s fixed, we will see rates begin a downward cycle.

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1 COMMENT

  1. Irrespective of the monsoon, when the inflation target is to be under 6% by Jan 2016 (and 6% is at the top of the acceptable range, the range is 4-6% I believe), how can the RBI possibly contemplate cutting rates. One only has to look back to Jan 2012 in your graph to see how inflation spiked down to similar levels, but cutting rates prematurely led to inflation shooting up again.

    There cannot be any rationale whatsoever to cut rates before inflation comes into the acceptable range of 4-6%. Shouldn’t it be just that simple? 7% is out of the acceptable range, ergo, no rate cut.

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