(Bloomberg) -- India’s retail inflation fell below the central bank’s target ceiling for the first time in three months as a series of interest rate increases since last year has slowed demand in Asia’s third largest economy.
The consumer price index rose 5.66% from a year earlier, according to data released by the Statistics Ministry on Wednesday, coming below the central bank’s target ceiling of 6%. The print was slower than the median forecast for a 5.70% gain in a Bloomberg survey of economists and compares with a 6.44% rise in February.
Food prices, which make up about half of the inflation basket, moderated 4.79%, while fuel and light gained 8.91%. Clothing and footwear prices increased 8.18% and housing rose 4.96%, helping ease core inflationary pressures.
Core inflation, which strips out volatile food and fuel costs, eased below 6% for the first time in 18 months to 5.8%.
The moderation in inflation is driven by “a combination of some waning in price pressures and high base effects. Over the next few months, the downward pressures on headline CPI will be material,” said Rahul Bajoria, economist at Barclays Plc.
The latest print reinforces a move by the Reserve Bank of India to keep its policy unchanged in order to assess the cumulative impact of 250 basis points in total rate increases since May last year. It could also lay the ground for future cuts in the rates given the International Monetary Fund is now guiding for ultra-low rates in the US and other industrial countries.
“Unless the feared heat wave leads to a rapid rise in prices of perishables, inflation may report a substantial base-effect led drop to around 5%-5.2% in the next two prints, which will reinforce the MPC’s decision to pause,” said Aditi Nayar, Chief Economist of ICRA Ltd.
Easing prices will hep India’s central bank support the economy that’s showing signs of cooling, prompting economists to forecast interest rate cuts later in the year. A forecast of a normal monsoon by the weather office will also provide reprieve to India’s policy makers.
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(Updates throughout.)
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