October inflation touches history low of 5.52%, rate cut hopes rise
New Delhi: The Consumer Price Index (CPI) has cooled to 5.52% from 6.46% reported in September, triggered by lower food prices and fuel costs. This is the slowest pace of price rise since retail inflation numbers were first published in January 2012.
Expectations are high that the central bank may cut rates as the decline in retail inflation may prompt rate cuts by the Reserve Bank of India, as the RBI has set a target of bringing inflation down to 8 percent by January 2015 and 6 percent by January 2016. However, Governor Raghuram Rajan has admitted to upside risks on the latter target.
In another positive development on the economic front, industrial production in September jumped 2.5 per cent compared to 0.4 per cent in August, driven by a positive growth in capital goods sector. In a major turnaround, the capital goods sector grew 11.6% as against a negative 11.3 % in August.
Spreading cheers in India's domestic market, global oil prices continued to slide, with benchmark Brent crude hitting a four-year low of $81 a barrel.
"A significant decline in crude oil prices globally has contributed to the downward price pressures in transport and communication and fuel inflation. Crude oil prices for the Indian basket ended the October month at $83.8 per barrel as compared to $95.3 per barrel at the beginning of the month. We expect this to continue going forward and crude oil prices globally to average at $100 per barrel in this fiscal as compared to $105.5 in 2013-14," said Crisil.
Rating agencies are predicting a moderation in the retail inflation, benefiting from a favourable base effect, a decline in domestic fuel prices and, to a smaller extent, easing global prices of other commodities.