CPI averages 3.9 per cent during Oct 2016-Mar 2020

The monetary policy committee headed by the RBI Governor is set to revise the policy framework and inflation targets by March 31

Mumbai: The RBI can pat itself for nearly achieving the inflation targeting goal with the consumer price index (CPI) averaging 3.9 per cent during October 2016-March 2020, as it races to review the monetary policy framework for the first time in five years, according to a report.

The monetary policy committee headed by the RBI Governor is set to revise the policy framework and inflation targets by March 31 – the first review since it was tasked with a mandated inflation target of 4 per cent with a 2 per cent deviation either way in June 2016, when it adopted a flexible inflation targeting model.

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Not only did the headline CPI inflation averaged closer to the target at 3.9 per cent during this period, inflation volatility, measured by its standard deviation, also declined to 1.4 during October 2016-March 2020 from 2.4 in 2012-16, BofA Securities said quoting the Reserve Bank of India data.

Indranil Sen Gupta and Aastha Gudwani, the house economists at Bank of America Securities India, in a note on Friday said they expect CPI inflation to average at 4.6 per cent in FY22, down from 6.2 per cent in FY21 and to stay within the RBI’s current mandate of 2-6 per cent.
For February, they expect the CPI print inching up to 4.8 per cent from 4.1 per cent in January on an unfavourable base and rising food and fuel inflation. On the new inflation target, they expect the revised framework should continue with a band at 2 per cent on the lower end and 6 per cent at the upper end, and not a point target for CPI inflation as beyond 6 per cent as financial stability and growth may get impacted.

The February CPI is the last CPI inflation print before the RBI announces its revised monetary policy framework, reviewing its 4 +/-2 per cent inflation band by the end of the month. Barring sporadic food-led inflation spikes, inflation trajectory is headed lower in FY22 and to average at 4.6 per cent as fundamental factors of inflation remain weak, because retail WPI at 2 per cent and core WPI at 3.7 per cent in January highlight that the fundamental factors of inflation are weak, they said.

The economists also expect the RBI to keep the operative inflation limit in their revised framework at 6 per cent combined CPI inflation as suggested in the recent currency and finance report. The BofA Securities report blames the spike in inflation to the recent firming up of food prices, cooking gas and rising petrol prices. Despite this, inflation is still expected to stay within the RBI’s 2-6 per cent mandate in H1 of 2021.

Retail inflation rises to 5.03% in Feb

Retail inflation rose to 5.03 per cent in February mainly on account of higher food prices, government data showed on Friday. The consumer price index (CPI) based retail inflation was at 4.06 per cent in January.

The rate of price rise in the food basket accelerated to 3.87 per cent in February, as against 1.89 per cent in the preceding month, as per data released by the National Statistical Office (NSO).

Inflation in ‘fuel and light’ category remained elevated at 3.53 per cent during the month vis-a-vis 3.87 per cent in January. The Reserve Bank, which mainly factors in the retail inflation while arriving at its monetary policy, has been asked to keep CPI inflation at 4 per cent with a margin of 2 per cent on either side.

On the other hand, India’s industrial production contracted by 1.6 per cent in January, official data showed on Friday. According to the Index of Industrial Production (IIP) data, the manufacturing sector output contracted by 2 per cent in January 2021. Mining output declined 3.7 per cent, while power generation grew 5.5 per cent in January. The IIP had grown by 2.2 per cent in January 2020.