press trust of india
New Delhi, Dec 25: Firming crude oil prices in the global market is likely to cast its shadow on retail inflation, which has began to move northwards after hitting a low of 1.46 per cent in June, and may prompt the RBI to hold interest rates at least for some time in 2018.
Besides global oil prices, the impact of implementation of 7th Pay Commission, including the hike in house rent allowance, is likely put pressure on prices. Retail inflation may average around 4-4.5 per cent next year, higher than an expected sub-4 per cent level this year, feel industry experts and economists. Retail inflation, which has a direct implication on common man and forms basis for the Reserve Bank (RBI) while reviewing policy decision, ranged between 1.46-4.88 per cent in 2017.
Whereas the consumer price index (CPI) based retail inflation was at the year’s lowest level of 1.46 per cent in June, it hit an eight-month high of 4.88 per cent in November.
The RBI, too, has upped its inflation projection to 4.2-4.6 per cent by March 2018 due to firming global oil prices and uncertainty on kharif farm output.
It aims to achieve a medium-term target of 4 per cent for retail inflation with band of plus/minus 2 per cent. Ranging between 0.90-6.55 per cent, wholesale price based WPI inflation moved in an inverted curve trajectory in 2017.
Wholesale prices rose between 5.25-6.55 per cent in first three months, touched lows of 0.90-1.88 per cent mid-year before gaining momentum to 3.93 per cent in October (WPI inflation data for November is due in January).
This price trend certainly kept the government in a comfortable situation this year, however fire fighting will be needed next year as majority of India’s imports bill stem from crude oil purchases.
SBI Research Chief Economist Soumya Kanti Ghosh said inflation will be rising
from this level, but will remain within sub-5 per cent.
“Inflation numbers for the next couple of months could be around 4 per cent to 4.5 per cent. Even though the inflation average for current fiscal could be 3.5-3.7 per cent, next year the inflation average could go up to 4.5 per cent,” he said.
But, it will still not be a major issue, Ghosh said, adding any rate action from the RBI is unlikely before second half of 2018.
“But, even if inflation goes to 5 per cent, it will be within RBI’s inflation target of 4-6 per cent. Crude prices are now around USD 65 per barrel that could be one source of inflation rise,” he added.
Experts are unanimous that crude oil will be a spoilsport next year.
Going into 2018, some upside momentum in inflation is likely to build up as it starts incorporating the recent increase in crude oil prices, Yes Bank Managing Director and Chief Executive Officer Rana Kapoor said.
