After the retail inflation was clocked below the Reserve Bank of India's threshold of 6 per cent for two straight months, the central bank decided to lower intensity of repo rate cuts. Days after RBI announced a rate cut of 25 basis points, India's retail inflation has again climbed above 6.52 per cent. This is the highest rate of inflation in three months, and may impact the expectation that RBI will do away with rate hikes.
The US Federal Reserve is also expected to raise interest rates further to buckle inflation, after job data showed higher employment. The higher retail inflation in India also indicates high demand and creates a need for curbing cashflow. The retail inflation for January is probably driven by higher food prices, since vegetables, pulses and milk among other essentials take up a bulk of household expenses.
In the economic survey of India, the government expressed hope for inflation to fall further, and stay below the RBI threshold. But the current results may prompt more measures from the central bank to control price rise. Before it went down, inflation had remained above the tolernace limit for three straight quarters.
