New Delhi: Retail inflation unexpectedly fell below 3 percent in April to multiple year low, putting pressure on RBI to cut interest rate after it took hawkish stance in last policy review citing upside risk on prices.
Retail inflation, based on Consumer Price Index (CPI), dropped to 2.99 percent in April over last year, mainly due to lower cost of food items, including pulses and vegetables. CPI inflation stood at 5.47 percent in April 2016.
The Central Statistics Office (CSO), which releases the CPI data, has revised upwards the March inflation to 3.89 percent from the earlier estimate of 3.81 percent.
The six-member Monetary Policy Committee of the Reserve Bank of India factors in the retail data while deciding the bi-monthly monetary policy review.
In its policy review on April 7, RBI had left the repo rate or benchmark lending rate unchanged at 6.25 percent for the third time in a row citing upside risk to inflation. The next policy is scheduled on June 7.
The mandate of the RBI is to contain the inflation at 4 percent, with a margin of 2 percent on the either side.
As per the CSO data, Pulses and products recorded a sharp fall in prices in April, with deflation of 15.94 percent, while vegetable prices fell by 8.59 percent. The comparative figures for March read (-)12.42 percent and (-)7.24 percent.
In the fuel and light category, the inflation reading in April stood at 6.13 percent, higher than 5.56 percent in March.
Fruit prices grew at 3.78 percent in April, slower than 9.35 percent in March, showed the ministry of statistics and program implementation (MOSPI) data released on Friday.
For cereals and products, the rate of price rise in April, at 5.06 percent, was lower than 5.38 percent in the previous month. For meat and fish, the inflation print came in at 1.90 percent during the reported month, from 2.96 percent in March.
Overall food inflation, or the rate of price increase, for April was at 0.61 percent as against 1.93 percent previously.
"Despite the lower-than-expected inflation prints, the MPC of the RBI may still choose to wait until the effects of the GST and HRA revision on inflation become clearer, and opt for a pause in the June 2017 policy review," said Aditi Nayar, principal economist with ICRA.
N.R. Bhanumurthy of economic think tank NIPFP the inflation would come down further in a couple of months largely because of sharp decline in food prices.
"But the RBI doesn't look at these number per se. They would be look at what would be inflation six or nine months down the line. Perhaps it reads inflation expectations," he said.
Earlier in the day, the government released the wholesale inflation data on new series with revised base year of 2011-12 as against 2004-05.
The WPI based inflation, based on the new series, slipped to a four-month low of 3.85 percent in April as both food articles and manufactured items showed decline.