Retail inflation to remain above 9 per cent, cautions RBI

The Hindu A file picture of retail market in Old Delhi. Photo: Shiv Kumar Pushpakar. The common man is unlikely to get relief from rising prices in the months ahead, with the RBI on Tuesday saying retail inflation will remain above 9 per cent during the course of this financial year.

Retail inflation measured by the consumer price index (CPI) has risen sharply across food and non-food constituents, including services, keeping inflation expectations high, the Reserve Bank of India said in its Second Quarter Review of Monetary Policy 2013-14.

“Notwithstanding the expected edging down of food inflation, retail inflation is likely to remain around or even above 9 per cent in the months ahead, absent policy action,” the central bank said.

RBI Governor Raghuram Rajan pitched for an appropriate policy response to tame wholesale as well as retail inflation.

“Overall WPI inflation is expected to remain higher than current levels through most of the remaining part of the year warranting an appropriate policy response,” Dr Rajan said in the monetary policy review.

Inflation as measured by the wholesale price index (WPI) accelerated in September for the fourth month in a row to 6.46 per cent. Retail inflation rose marginally to 9.84 per cent in September, mainly due to a hike in food prices, particularly of vegetables.

The RBI said food price pressures may ease with the arrival of the kharif harvest and seasonal moderation. Food inflation in the WPI basket stood at 18.40 per cent in September.

The RBI on Tuesday hiked the lending (repo) rate by 0.25 per cent to 7.75 per cent, saying it was important to break the spiral of rising price pressures in order to curb the erosion of financial saving and strengthen the foundations of growth.

The policy stance, the central bank said, “is intended to curb mounting inflationary pressures and manage inflation expectations in a situation of weak growth.”

The RBI said it plans to introduce inflation-indexed National Saving Securities for retail investors in November or December in consultation with the government.

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Rangarajan differs with RBI on inflation projection

The Hindu A file picture of Dr C. Rangarajan, Chairmanof PMEAC and former Governor of RBI. Photo: G. P. Sampath Kumar. Disagreeing with Reserve Bank’s projection on the price situation, former RBI Governor and PM’s Economic Advisory Council chairman C Rangarajan said WPI and CPI may not be as high as being projected by the central bank.

“Well I think the inflation rate may not be as high as (RBI) report seems to suggest. I would really think as far as WPI is concerned, it will be around 5.5 to 6 per cent. I don’t think that it will exceed 6 per cent...I expect the WPI as well as CPI to remain at slightly lower level than indicated,” Dr Rangarajan said.

Reserve Bank of India in its second quarter review of monetary policy, has said that “overall WPI (Wholesale Price Index) inflation is expected to remain higher than current levels through most of the remaining part of the year.”

Besides the central bank in its review unveiled today said that retail inflation measured by the consumer price index (CPI)...is likely to remain around or even above 9 per cent in the months ahead.

According to Dr Rangarajan, the whole (monetary) policy has focused on price stability and that is the right approach.

“I think.. as the Central Bank of the country, price stability is its dominate objective. Therefore the way to interpret the policy would be that it will depend very much on the behaviour of the inflation,” he said.

About chances of further rate hikes RBI, he said, “..if the situation (inflation) picks up from the current level then perhaps RBI is consistent with what it said in the policy review, it has to raise it (interest rate). But I will not at this particular point, make any guess. We would like to watch inflation behaviour all the next 6 weeks.”

Dr Rangarajan said he thinks there are prospects of inflation moderating in the next month or so because of better monsoon and the (other) impact on the food inflation.

About the lowering economic growth projection for this fiscal from 5.5 per cent to 5 per cent by RBI, he said, “We had estimated the growth rate to be at 5.3 per cent for the year. I don’t see any reason to alter that (projection) at present point.”

“Various reasons in the policy suggest that growth will pick up in second half of this fiscal. Some people think that agriculture growth will be in excess of 5 per cent. Taking all these factors into account, it can be higher than 5 per cent,” he added.

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