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Consumer price inflation set to see upside pressure: Crisil

14 February 2017

Driven by fall in the prices of vegetables, pulses and scarcity of cash in the hands of individual arises due to government's sudden noteban in November past year, the inflation-based on Consumer Price Index (CPI) dipped by 3.17 per cent in January, 2017 against 5.69 per cent in the same month previous fiscal.

The official data disclosed that prices of vegetable plunged by (-) 15.62 per cent on a year-on-year (YoY) basis, whereas cost of pulses dropped by (-) 6.62 per cent.

The prices of vegetables and pulses declined the most during the month of January from December.

Inflation rate of meat and fish, however, increased to 2.98 per cent in January, while that for fruits stood at 5.81 per cent.

Food inflation in January stood at 0.53 per cent, down from 1.37 in December 2016 and 6.85 per cent in January a year ago. In rural areas, food inflation was 1.1%, while in urban centres it fell 0.5% as prices of vegetables and food items softened. Economists expect retail inflation to inch upwards in the months ahead.

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The cost of fuel surged 3.4 per cent to a two-year high in January, driving the annual increase to nearly 20 per cent.

Food prices account for about one third of China's CPI.

The CPI data revealed that the annual retail inflation for rural India was 3.36 per cent while that for the urban centres was 2.90 per cent. Food prices have also been easing for six consecutive months.

Even though the retail inflation is well below Reserve Bank of India's target of 5 per cent, it is unlikely that the central bank will go for a rate cut in the coming months. "In this context, it is important to note three significant upside risks that impart some uncertainty to the baseline inflation path - the hardening profile of worldwide crude prices; volatility in the exchange rate on account of global financial market developments, which could impart upside pressure to domestic inflation; and the fuller effects of the house rent allowances under the 7th Central Pay Commission (CPC), which have not been factored in the baseline inflation path", RBI had said.

Consumer price inflation set to see upside pressure: Crisil