InvestorQ : Will the latest inflation numbers change the RBI rate cuts in future?
Mary Joseph made post

Will the latest inflation numbers change the RBI rate cuts in future?

sara Kunju answered.
2 years ago

Here is what you must know about the inflation announcement and its implications for future rate cuts by the RBI.

· CPI or retail inflation for September came in at 3.99%, which was much more than the market expectation of 3.70% retail inflation

· The inflation number in August was just 3.21% so this represents a really sharp rise in the inflation on a YOY basis

· The sharp hike in inflation was led by urban food inflation, largely driven by higher prices of pulses, vegetables and fruits. Core inflation and fuel inflation continued to remain around the same levels

· Rural inflation continues to remain low and that is due to substantial distress in farm incomes. That could be justification for lower rates

· The inflation is still within the RBI comfort zone of 4% and remembers that the RBI has also given a leeway of 2% either ways in a worst case scenario.

· Even as retail inflation was at 3.99%, the whole sale inflation or WPI came in at just 0.33% meaning that prices are still under pressure at the producer level.

· RBI may choose to cut rates one more time in December by 25 bps as the current spike in inflation appears to be food driven and should automatically rectify once the supply shocks are managed by the government.