Easing prices may prompt RBI to hold rate hike next month

New Delhi : Retail inflation cooled to a 10-month low of 3.69 per cent in August — below RBI’s target of 4 per cent — on the back of easing prices of fruits, vegetables and other food items, official data showed on Wednesday.

The lower retail inflation increases the likelihood of Reserve Bank of India keeping interest rates on hold in October after raising them at its past two meetings.

The fall in retail inflation comes at a time when petrol and diesel prices increasing that have been on the rise since August 16. Also, the rupee has weakened in the recent weeks, making imports costlier.

The Consumer Price Index (CPI) based inflation was at 4.17 per cent in July and 3.28 per cent in August 2017.

The previous low for CPI inflation was in October 2017, when it stood at 3.58 per cent. Inflation remained above RBI’s targeted rate of 4 per cent since then.

The Central Statistics Office (CSO) data showed that inflation in the food basket fell significantly to 0.29 per cent in August 2018 as against 1.37 per cent in the previous month.

Vegetable prices declined by 7 per cent in the month. The rate of price rise in fruits stood at 3.57 per cent, compared to around 7 per cent in July.

However, there was a moderate increase in inflation in the fuel and light segment. It rose to 8.47 per cent in August compared to about 8 per cent in July.

Diesel accounts for 40 per cent of India’s fuel basket and is consumed mainly by the transport sector.

The Reserve Bank of India (RBI) will be factoring in inflation data while deciding the interest rate at its next bi-monthly monetary policy meeting on October 5.

The central bank has been tasked to maintain the retail inflation at the level of 4 per cent (with a margin of 2 per cent on either side).

Price data are collected from selected towns by the Field Operations Division of the National Sample Survey Office (NSSO) and from selected villages by the Department of Posts. Price data are received through web portals, maintained by the National Informatics Centre.

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