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August CPI falls to 3.66%; food inflation comes in at 2.20%

In a major relief to investors as well as the common man on the street, battling high prices, consumer price index (CPI) for the month of August came in at 3.66 percent, marginally lower than the July CPI which stood at 3.78 percent. The range for the CPI was between 3.3 percent and 3.6 percent.

Despite the marginal fall in CPI, this will still come as music to the Reseve Bank’s ears which had said it expects retail inflation to fall to about 4 percent by August.

A CNBC-TV18 poll had expected August CPI to come in at 3.47 percent.

The base effect is playing a major role here considering CPI had come in at around 7 percent in August 2014, while core CPI was at 6 percent, food inflation was at 8.6 percent and vegetable inflation was at 10.8 percent.

Food inflation for the month of August has come in almost flat at 2.20 percent versus 2.15 percent month-on-month (MoM), while vegetable price inflation stands at -6.36 percent against -7.93 percent (MoM). Food and beverages account for 46 percent of the CPI basket. Economists though were working with 2.3 percent food inflation. Cereals and products inflation stands at 1.22 percent versus 1.06 percent in July.

Soumya Kanti Ghosh Chief Economic Advisor, SBI says the fall core inflation is a major positive.

“Even after food inflation edging up , 4.13 percent is a positive indicator. It seems that the overall disinflationary impetus looks to be entrenched even though we may have an higher inflation in terms of the service component. So, that is a satisfying number as far as the CPI core is concerned,” he explains.

Rural inflation for August stands at 4.47 percent against July’s 4.44 percent, while urban inflation is at 2.67 percent versus 2.94 percent MoM.

Meanwhile, the government has revised July CPI inflation lower to 3.69 percent from 3.78 percent earlier.

The RBI has a target of containing consumer price inflation within 6 percent by January 2016 and within 4 percent for all subsequent years.

Sajjid Chinoy, Asia Economics, JPMorgan, says, “..on an as is where is basis, if things don’t move dramatically from these levels we are looking at January to March CPI inflation somewhere around 5.5 to 5.7 range.”
Chinoy, like Ghosh, further, expects the RBI Governor to cut repo rates by 25 basis points (bps) on September 29, and rules out any further cut.

Also, WPI inflation declined for the 10th straight month, coming in at minus 4.95 percent in August against 4.05 percent in July. The decline, however, was much more than analysts forecast of 4.43 percent.

Market expert Dipen Mehta expects Dalal Street to react to the CPI numbers positively. He says the Governor could cut rates by 25 basis points (bps) but the market may not react significantly to the same as it is being factored now.

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