Rating agency CRISIL Research expects headline inflation, measured by the Consumer Price Index (CPI), could rise 60 basis points (bps) to 4 per cent in the financial year 2018-2019 from 3.4 per cent. This base case assumes food inflation rising to 3 per cent from an abnormal low of 0.1 per cent. "To be sure, this is largely statistical low-base effect at play. However, the rise in food prices may well remain subdued on a sequential basis for two reasons. One, the Indian Meteorological Department has suggested a well-distributed monsoon this year. Two, global food prices are expected to decline in 2019, as projected by the International Monetary Fund and World Bank," says the agency.
In a report titled 'Whither Inflation' released today, CRISIL has cited two inflation scenarios for the fiscal.
The upside scenario: "If monsoon plays truant, especially in light of an El Nino event, food inflation could surge. Fuel inflation could follow suit if the current uptick in international crude prices persists. Also, core inflation (the part of headline inflation sans food and fuel) could strengthen further on account of the government's consumption-oriented policies. Together, these could push headline inflation up to 5 per cent."
The downside scenario: Inflation could be lower at 3.5%, says the agency, adding that it would happen if the food inflation remains low for longer, core softens as a result of the lagged impact of economic slack, and government spending remains restrained. "Fuel, on the other hand, appears to be the most volatile, but given its low weight in the CPI basket, its direct influence on headline inflation is limited," the agency added.
India's retail inflation touched a six-month high in April to 2.92 per cent on high food prices, compared with 2.86 per cent in March. Despite a slight increase, the consumer price index remains below the target of 4 (+/-2) per cent. Experts suggest there's still quite a chance that the RBI's Monetary Policy Committee would further cut key rates to ease the pressure. Retail inflation remains well within the RBI's comfort level of 4 per cent for about eight months now, which has come down from 4.17 per cent in July 2018. Retail inflation was 3.31 per cent in October 2018, while it was the highest in June 2018 at 5 per cent.
Edited by Manoj Sharma