Food Prices to Moderate Downward Inflation Trajectory

Consumer prices rose at a modest pace in February, another sign that inflation pressures are still being held at bay, the Labor Department reported Tuesday.

The index for all items less food and energy increased 0.2 percent in February, and it rose 1.8 percent over the past 12 months, the same figure as the prior two months.

Indices of Industrial Production for the Mining, Manufacturing and Electricity sectors for the month of January 2018 stand at 114.5, 133.8 and 149.5 respectively, with the corresponding growth rates of 0.1%, 8.7% and 7.6% as compared to January 2017. Similarly, the core CPI measure eased to a monthly rate of 0.2% in February from 0.3% in January, resulting in a steady annual rate of 1.8%.

The inflation rate is in below expectations as a Reuters survey of 30 economists had predicted it to come at 4.80 per cent.

The central bank expects retail inflation to pick up to 5.1 per cent to 5.6 per cent in April-September before easing, assuming normal rainfall. In fuel and light, inflation fell sharply to 6.8% from 7.7%, while inflation in petrol and diesel rose to 2.8% from 1.7%. However, Friday's miss on wage growth will now provide a headwind for a further rise in the greenback.

Still, Tuesday's report suggests that inflation is slowly moving toward the Federal Reserve's 2 percent target.

Clothing and footwear price inflation has recorded a rise of 5.00% in prices.

The unemployment rate also remained 4.1 percent for the fourth month as almost a million people flooded into the job market and a lot of them found jobs.

"The eventual rabi harvest, distribution of the 2018 monsoon and the operationalization of the proposals made in the Union Budget for FY19, including the launch of Operation Greens and the augmentation of minimum support prices, would impact the trajectory of food inflation going forward", she added. A weakening dollar and fiscal stimulus in the form of a $1.5 trillion tax cut package and increased government spending are also seen spurring inflation.

Capital goods output in the month under consideration increased sharply by 14.6 per cent, as against a fall of 0.6 per cent in January previous year.

The S&P 500 and the Dow slipped on Monday as the US tariffs signed into law last week weighed on industrials, while a rise in tech stocks boosted the Nasdaq to a new record high.

Deloitte India Lead Economist Anis Chakravarty said: "Overall, the latest IIP data points towards signs of economic recovery as the negative effect of the disruptive shocks of a year ago appear to be on the wane".

(Copyright © 2015. All Rights Reserved.)

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