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Last updated: 16 May, 2023  

Inflation.9.Thmb.jpg Monetary easing not far off!

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Bikky Khosla | 16 May, 2023

Retail inflation fell to 4.70 percent in April from 5.66 percent in the previous month. This is the lowest consumer price index based inflation in last 18 months. Also, for the second consecutive month, retail inflation fell to RBI’s target range of 2-6 percent. This is a welcome development, particularly in the light that this moderation is mainly due to fall in prices of food items, which comprise nearly 50 percent of the overall consumer price basket.

The RBI Governor reacted that the latest inflation data proves that the monetary policy is on the right track, and although he refused to comment if this would led to change in policy stance of the central bank, it is clear that the softer inflation provides RBI a much-needed space to become less hawkish. It is noteworthy here that according to some economists, retail inflation may fall further towards 4 percent in May.

Meanwhile, as per data released Monday, wholesale inflation fell to (-) 0.92 percent in April. Besides a low base, fall in prices of food, fuel and other input costs played a key role in this fall. This is the lowest WPI inflation in nearly three years. Wholesale inflation has for quite some time now showing a declining trend, but this slip into the negative territory looks remarkable and will certainly provide the RBI some space it needed.

But some experts are still sceptical. RBI’s next monetary policy review is scheduled in June, and they are of the view that easing policy may not be easy even now when retail inflation is at an 18-month low level while wholesale inflation has entered into the negative territory. Finding the right balance between inflation and growth is indeed a difficult task, but we hope, the central bank will be able to press the right button in its upcoming policy review.

I invite your opinions.

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