India's retail inflation falls to record low as food prices drop

Published Mon, Oct 13, 2014 · 01:45 PM

[New Delhi] India's retail inflation declined for a second straight month in September, but the risks of price shocks are expected to keep the central bank from cutting interest rates anytime soon.

Consumer prices rose a slower-than-expected 6.46 per cent from a year earlier, the lowest since figures were first published in January 2012, Slowing food inflation and a favourable statistical base led to the decline, government data showed on Monday.

In August, retail prices rose 7.73 per cent year on year.

Lower prices should cheer Prime Minister Narendra Modi. He won the strongest electoral mandate in 30 years in May on promises to control inflation and pull India's economy out of the longest slowdown since 1980s.

India long has struggled with soaring prices, particularly those for food. Food prices dropped last month to 7.67 per cent from 9.35 per cent in August.

Encouragingly, core inflation slowed to 5.9 per cent from 6.9 per cent in August, suggesting demand-driven price pressures are weakening. "With core inflation coming off incrementally, RBI's comments on controlling inflation may get more confident," said A Prasanna, an economist at ICICI Securities Primary Dealership.

Still, the Reserve Bank of India is widely expected to keep interest rates on hold until the April-June quarter. Its concern is that risks linked to sub-normal monsoon rains and growing geopolitical tensions could drive up prices. "This doesn't materially change the probability of any rate cut in the near term," Prasanna said.

The RBI sent a strong signal last month that it would hold off cutting interest rates until it was confident that consumer inflation could be reduced to a target of 6 per cent by January 2016. REUTERS


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