India’s Inflation Data: What Will RBI Interpret?

India’s retail inflation eased to 4.85 per cent on an annual basis in March as against 5.09 per cent in the previous month, Analysts had estimated the number to come down to 4.91 per cent. Meanwhile, industrial production surged to a four-month high of 5.7 per cent in February compared with 4.2 per cent in the previous month.

Brief of CPI Inflation Data

The Consumer Price Index (CPI) measures the change in the prices of goods and services from the perspective of the consumer. The Central Bank pays very close attention to this figure in its role of maintaining price stability.

On Friday, April 12, 2024, The Ministry of Statistics released the CPI data for March which stood at 4.85% below the forecasts of 4.91% and also below the previous month of 5.09%. CPI inflation has stayed within its tolerance range of 2-6% for the seventh consecutive month. Overall, food inflation fell to 8.52% in March, and declined from 8.66% in February, Food inflation, measured by the consumer food price index, accounts for nearly half of the overall consumer price basket. It stood at 8.3% in January.

Analysts Say on Inflation Data

According to analysts,”The headline inflation for March has come in line with expectations. While core inflation continues to moderate, we remain wary of the heatwaves going ahead, which could keep food inflation elevated and volatile in the summer months.”

A poll of analysts had estimated retail inflation to fall to 4.9% in March, due to a decline in food and fuel prices, and a continued easing in core inflation.

RBI’s Interpretation

RBI’s interpretation of this data is going to play a key role, With RBI keeping interest rates unchanged from the past 1-year at 6.5. The tolerance range of inflation for RBI is 2-6% and the target is said to be at 4%

According to analysts, the MPC (Monetary Policy Committee) is expected to remain in a wait-and-watch mode until H1FY25, with possible easing in the H2 part of FY25, “depending on the evolution of monsoons, crude oil prices and timing of Fed’s rate easing cycle”. Some agencies expect RBI to Initiate Repo cuts from Mid-2024.

Conclusions: The inflation rate is coming nearer to the RBI target of 4%,though it had seen a rise in February month but now it has declined. Regulating interest rates is a key instrument for the central bank to control inflation. Higher interest rate  makes borrowing costs more expensive, which can reduce demand among banks, other financial institutions and even the general public to borrow money.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.