Inflation: good news


Inflation: good news

There is good news on the inflation front.

Retail inflation for the month of October  was in line with analyst estimates and the Reserve Bank of India (RBI) governor’s projections and moderated to 6.8% from its September print of 7.4%. RBI expects retail inflation to moderate further going forward. Wholesale inflation grew at 8.4% in October after 19 consecutive months of double-digit growth. While there is a base effect at play in its moderation, The Hindustan Times says “the psychological impact of a year-and-a-half-long double-digit inflation run ending cannot be underestimated.”

No time for complacency: This however, says the paper does not  mean policymakers can breathe easy. “Far from it. Core inflation — it measures the non-food non-fuel component of the Consumer Price Index basket — remained sticky around the 6% mark. Cereal prices could emerge as the next pressure point on the food inflation front. If this were to happen, it would nullify the gains of prices of such things as edible oil coming down. The other thing worth watching out for is the external monetary and price environment. If advanced economies, especially the United States, continue to pivot towards a more hawkish approach in monetary policy, emerging economies, including India, will have to walk the extra mile on monetary tightening to send the correct signals to international capital and currency markets even if it comes at the cost of generating extra headwinds for the ongoing economic recovery. The most critical factor in containing inflation will be the government’s ability and willingness to cushion the impact of rising cereal prices. The expansion of food grain entitlements under the ‘Pradhan Mantri Garib Kalyan Yojana’ (PM’s development program for the poor) has played a key role in mitigating the inflationary impact of what is an extraordinarily tight market in cereals. But the government could be running out of fiscal space and food stocks to continue with the scheme once the extension ends in December. The fiscal benefits of ending the scheme notwithstanding, it could trigger a wage price spiral, especially for the bottom of the pyramid.”

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