Retail inflation drops to 2.19 per cent

India’s retail inflation dipped to 2.19 per cent low in December 2018 from 2.33 per cent in the preceding month, this is near RBI’s lowest target for inflation.

The country’s central bank, the Reserve Bank of India (RBI), had kept a retail inflation target range of 4 per cent +/- 2 per cent. This fall in retail inflation was led by a decline in food prices and lower fuel and housing prices. The fall is causing a higher real interest rate of around 4.6 per cent.

With this, the retail inflation is near its 18-month low, the previous low inflation was seen in the month of June 2017 which was 1.46 per cent. Easing of the retail inflation does not just turns down any chances of a rate hike, but it also gives RBI reason to go for a rate cut. This could make the monetary policy committee to change its stance back to neutral, at least.

Also, the lower food prices data indicates that the government’s recent MSP on various agri-products are yet to materialise. The lower food prices also lead to a lower rural income which in turn hurts rural consumptions.

Meanwhile, the markets were in a positive mood on Tuesday. The BSE Sensex was at 36,203, up by 349 points in the pre-lunch session.