Indian consumer price inflation eases again in January on weak food prices

India’s consumer price index eased in the month of January, coming below market expectations. The headline inflation eased to 0.29 percent sequentially from December’s 0.50 percent. On a year-on-year basis, the headline inflation slowed to 2.05 percent from a downwardly revised print of December’s 2.11 percent.

This is the ninth straight month when inflation undershot market expectations. It is also the slowest in 19 months and in close proximity of the lower end of the RBI’s medium-term inflation target of 2 percent to 6 percent.

Food prices continued to be the biggest drag on overall inflation, falling 1.29 percent year-on-year. This marked the fourth straight month of slowdown, led by vegetables, fruits and pulses. All other major components of CPI also eased on an annual basis compared to the previous month. The biggest moderation was in the ‘fuel and light’ component that decelerated to 2.2 percent year-on-year from 4.47 percent in December. This is greatly linked to an easing in domestic fuel prices excluding for conveyance purposes. Fuel prices used for transportation under the ‘miscellaneous’ category also fell 0.16 percent sequentially in January, albeit less severely than the 1.51 percent recorded in December.

Softness in overall price pressures reflected in core rate as well, which eased to 5.38 percent year-on-year in January from 5.67 percent in December. The deceleration in domestic demand is adding to the downside in core inflation, noted ANZ in a research report.

“Given the benign trajectory in food prices and stable crude oil prices, we expect inflationary pressures to remain muted in the near term. We have been expecting the RBI to cut the policy rates only by 25bps throughout 2019 but the persistent softness in the latest inflation data warrants a review of our monetary policy call”, added ANZ.

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