CPI at Record Low 3.63%
India’s retail inflation rate slowed sharply to 3.63 percent in November from October’s 4.2 percent, mirroring weak demand as households and companies, hit by demonetisation, have put off spending and investment.
The moderation is even sharper on an annualized basis. Retail inflation had grown 5.41 percent in November 2015, indicating a more expansionary economy a year ago.
The latest price data confirms fears about the slide in shop-end sales triggered by the unexpected ban on Rs 500 and Rs 1000 currency notes last month.
Low inflation levels can indicate poor demand and weak economic activity.
At 3.63 percent, retail inflation is hurtling fast towards the government and Reserve Bank of India’s (RBI’s) the lower tolerance limit and can be a cause for worry unless steps are taken to engineer a quick turnaround in consumer spending.
Retail inflation data, measured by the consumer price index (CPI), is the broadest metric to measure cost of living in India, also serves as the RBI’s main guide for fitting trends in economy-wide price movements.
The RBI and the government have set a retail inflation target of 4 percent for the next five years with an upper tolerance level of 6 percent and lower limit of 2 percent.
Consumer food price inflation, a metric to gauge changes in monthly kitchen costs, also fell sharply to 2.11 percent, lower than October’s 3.3 and nearly four percentage points lower than 6.07 percent a year ago, reflecting how the cash-crunch has hurt demand for both perishable and processed food items.
The currency recall has forced families to spend less, depressing demand for some goods including perishable products in November.
Discretionary spending on goods and services in the retail inflation index excluding food and fuel, which constitute 16 per cent of the CPI basket, appear to have been worst affected by restricted access to cash.
For instance, demonetisation appears to have had an adverse effect on eating out.
The growth in consumer price index for “prepared meals”, a proxy to measure changes in restaurant meal rates and readymade food items such as sweets and packaged snacks, moderate to 5.82 percent, indicating that fewer notes in their pockets have forced a cut-down in people’s spend on out-of-home dining.
The price data also held out pointers on demonetisation’s effect on prices of housing, fuel and light, health, transport and communication, pan, tobacco and intoxicants, and education that together account for 38 per cent of India’s retail inflation basket.
Housing inflation grew by 5.04 percent in November compared to 5.15 percent in October.
Price and factory output data will give out the clearest indications about demonetisation’s impact on sales and investment.
Data released last week showed that India’s factory output fell (-)1.9 percent in October from 0.7 percent in the previous month, signs that festive season shopping have failed to trigger an industrial revival.
Latest data showed that consumer durables output grew 0.2 percent in October from 14 percent in the previous month, an unexpected slowdown given that TV and refrigerator sales usually peak during the Diwali month.
Consumer durables output and sales could slowdown even more in the coming few months following the scrapping of high denomination currency notes and the limit on daily and weekly cash withdrawals.
The ban has also upset families’ spending plans on cars, televisions and refrigerators that peak during the wedding season during October-March.
In its monetary policy review earlier this month, the RBI retained its March-end retail inflation forecast of 5 percent, cautioning that high oil prices and rising interest rates could push up domestic prices.
The six-member Monetary Policy Committee (MPC) headed by RBI governor Urjit Patel is of the view low headline inflation rates could be masking rising prices protein and services costs.
Source: Moneycontrol
The moderation is even sharper on an annualized basis. Retail inflation had grown 5.41 percent in November 2015, indicating a more expansionary economy a year ago.
The latest price data confirms fears about the slide in shop-end sales triggered by the unexpected ban on Rs 500 and Rs 1000 currency notes last month.
Low inflation levels can indicate poor demand and weak economic activity.
At 3.63 percent, retail inflation is hurtling fast towards the government and Reserve Bank of India’s (RBI’s) the lower tolerance limit and can be a cause for worry unless steps are taken to engineer a quick turnaround in consumer spending.
Retail inflation data, measured by the consumer price index (CPI), is the broadest metric to measure cost of living in India, also serves as the RBI’s main guide for fitting trends in economy-wide price movements.
The RBI and the government have set a retail inflation target of 4 percent for the next five years with an upper tolerance level of 6 percent and lower limit of 2 percent.
Consumer food price inflation, a metric to gauge changes in monthly kitchen costs, also fell sharply to 2.11 percent, lower than October’s 3.3 and nearly four percentage points lower than 6.07 percent a year ago, reflecting how the cash-crunch has hurt demand for both perishable and processed food items.
The currency recall has forced families to spend less, depressing demand for some goods including perishable products in November.
Discretionary spending on goods and services in the retail inflation index excluding food and fuel, which constitute 16 per cent of the CPI basket, appear to have been worst affected by restricted access to cash.
For instance, demonetisation appears to have had an adverse effect on eating out.
The growth in consumer price index for “prepared meals”, a proxy to measure changes in restaurant meal rates and readymade food items such as sweets and packaged snacks, moderate to 5.82 percent, indicating that fewer notes in their pockets have forced a cut-down in people’s spend on out-of-home dining.
The price data also held out pointers on demonetisation’s effect on prices of housing, fuel and light, health, transport and communication, pan, tobacco and intoxicants, and education that together account for 38 per cent of India’s retail inflation basket.
Housing inflation grew by 5.04 percent in November compared to 5.15 percent in October.
Price and factory output data will give out the clearest indications about demonetisation’s impact on sales and investment.
Data released last week showed that India’s factory output fell (-)1.9 percent in October from 0.7 percent in the previous month, signs that festive season shopping have failed to trigger an industrial revival.
Latest data showed that consumer durables output grew 0.2 percent in October from 14 percent in the previous month, an unexpected slowdown given that TV and refrigerator sales usually peak during the Diwali month.
Consumer durables output and sales could slowdown even more in the coming few months following the scrapping of high denomination currency notes and the limit on daily and weekly cash withdrawals.
The ban has also upset families’ spending plans on cars, televisions and refrigerators that peak during the wedding season during October-March.
In its monetary policy review earlier this month, the RBI retained its March-end retail inflation forecast of 5 percent, cautioning that high oil prices and rising interest rates could push up domestic prices.
The six-member Monetary Policy Committee (MPC) headed by RBI governor Urjit Patel is of the view low headline inflation rates could be masking rising prices protein and services costs.
Source: Moneycontrol
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