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RBI's flip flop on CPI inflation outlook

The CPI figure for December month is almost half of what the RBI has been projecting for the last one year.

twitter-logo Anand Adhikari   New Delhi     Last Updated: January 31, 2019  | 18:24 IST
RBI's flip flop on CPI inflation outlook

It is strange, but it's true. The Reserve Bank of India's projections on retail inflation or CPI are turning out to be completely off the mark.

The CPI figure for December month has reached the 18 month low of 2.2 per cent. This figure is almost half of what the RBI has been projecting for the last one year. The projections for second half of the year (Oct-March) of 2018-19 have already changed six times.

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And the RBI has still not got it right. The inflation numbers have been below 4 per cent since August last year. There are challenges though for RBI with crude and rupee depreciation throwing a surprise, but the current numbers are way to off the mark.

Take a look:

  • In February last year, the projected CPI inflation was between 4.5-4.6 per cent for the second half of 2018-19.
  • In April, the CPI inflation projection was pegged at 4.4 per cent.
  • In June, the CPI inflation projection for second half (Oct-March) of 2018-19 was again revised upwards. It was kept at 4.7 per cent including HRA impact for Central Government employees with risk tilted to the upside. The reasons given was "abrupt acceleration in CPI inflation excluding food and fuel."
  • In August, the CPI inflation was upped to 4.8 per cent in the second half. The inflation without HRA impact was kept between 4.7-4.8 per cent.
  • In October, the CPI inflation was made range bound between 3.9-4.5 per cent in the second half with risks somewhat to the upside. Without HRA, there was not much change with CPI at 3.8-4.5 per cent. The RBI then talked about inflationary risk with an upward bias.
  • In December, the RBI lowered the projection to 2.7-3.2 per cent in the second half with risk tilted to the upside. The RBI did talk about surprises on food and fuel on the lower side, but it talked about monitoring the data points closely.

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