InvestorQ : What is the outlook for CPI inflation for the month of December 2020, which his expected to be announced in the coming week?
ishika Banerjee made post

What is the outlook for CPI inflation for the month of December 2020, which his expected to be announced in the coming week?

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2 months ago
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According to a Reuters Poll, India’s retail CPI inflation is expected to fall sharply in Dec-20 due to a significant drop in vegetable and food prices. The poll of 45 economists pegs the retail CPI inflation for Dec-20 at 5.28% in December from 6.93% in November. This is well within the limits imposed by the RBI.

The economists have noted that food prices had started to correct since supply lines were being restored backed by the positive impact of good monsoons. The RBI has set the inflation target at 4% with 2% leeway either ways. That gives an inflation range of 2% to 6% but that limit had been breached consistently on the upside in the last few months.

If the economists are correct, then it could be the lowest level of CPI inflation since November 2019, which can give the RBI more ammunition to keep rates low, liquidity abundant and also divert more of its energies to growth. RBI has already slashed interest rates by 115 basis points in March 2020 and May 2020 to stimulate growth in the economy.

The Indian economy had contracted by 7.5% in the Sep-20 quarter after falling by a whopping 23.9% in the Jun-20 quarter. Now, the advance estimates of the MOSPI have pegged full year GDP contraction at -7.7%.However, it is still now clear if the farmer protests will have any impact on agricultural supply lines and therefore on food prices.

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