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Food inflation may revive as demonetisation effect fades off

The fall was primarily on account of food inflation which declined to a five-year low of 0.5 per cent in January 2017 from 1.4 per cent a month ago.

twitter-logoNiti Kiran | February 14, 2017 | Updated 17:51 IST
Food inflation may revive as demonetisation effect fades off

Declining for the seventh month in a row, retail inflation, as measured by the consumer price index (CPI), expectedly eased further to 3.2 per cent in January from 3.4 per cent in the previous month. This was the lowest since the introduction of the current series of CPI.  

The fall was primarily on account of food inflation which declined to a five-year low of 0.5 per cent in January 2017 from 1.4 per cent a month ago. Both rural and urban areas recorded a fall in food inflation. In rural India, food inflation fell to 1.1 per cent from 2.1 per cent. Food inflation in urban areas recorded a deflation of 0.3 per cent in January 2017 from an inflation of 0.2 per cent in December 2016.

The growth in vegetable prices has been in negative territory since September 2016 and slipped to 15.6 per cent in January. However, vegetable prices may revive as the effects of demonetisation fades off.    

Inflation in rural areas fell to 3.4 per cent in January from 3.8 per cent in the previous month. Retail inflation in urban areas remained unchanged at 2.9 per cent in January 2017 as compared to the previous month. Fuel & light group also recorded a fall in inflation to 3.4 per cent in January 2017 from 3.8 per cent in December 2016. Non-food components such as pan, clothing, and footwear have shown higher price increases during the period.

Now that the WPI inflation has surged to its highest level since August 2014, the focus has shifted more towards the widening gap between the high wholesale inflation and softening retail inflation. The retail inflation is expected to remain sticky and presents a very limited scope for a rate cut by the central bank.  

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