Consumer price inflation dropped below 4 percent for the first time in 2018, as prices of pulses and vegetables remained under control even as fuel prices rose.
This inflation creates problems for India’s Monetary Policy Committee, which may inspect the need to hike rates against a weaker rupee when it meets next in October.
According to Data released by the Central Statistics Office on Wednesday, demonstrated that retail inflation was at 3.69 percent in August against 4.17 percent in July. The estimated inflation is 3.77 percent for August 2018 as per a report by 41 economists, of Bloomberg.
This time India’s retail inflation dropped to an 11-month low of 3.69 percent in August, because of a sharp fall in prices of kitchen items, like fruits and vegetables.
CPI is the principal price gauge tracked by the Reserve Bank of India (RBI). The central bank has been instructed to keep retail inflation at 4 percent level, with a margin of 2 percent on either side.
August has become the first month in last 10 in which retail inflation was under the Reserve Bank of India’s medium-term target of 4 percent.
According to Garima Kapoor, an economist at Elara Capital in Mumbai “While weakness in the rupee adds to the upside risk, factors such as still sanguine domestic food prices and moderation in global commodity prices (excluding oil) are likely to provide some relief,”.
RBI on August 1, revised the inflation projection for the second half of FY19 to 4.8 percent from 4.7 percent previously and for the first quarter of the next financial year, RBI projected inflation at 5 percent.
Key factors responsible for the projection are a hike in the minimum support price (MSP) of kharif crops by at least 150 percent, instability in global financial markets, rising crude oil prices along with significant rise in core inflation.
The rupee has dropped more than 12 percent against the dollar this year to hit an all-time low of 72.92 on Wednesday. This fluctuation has sparked discontent in a country that depends heavily on imports for its fuel needs.