Retail Inflation Still above RBI’s Comfort Zone

Retail inflation for August 2020 has come down to 6.69 per cent, but it is still higher than the targeted rate of inflation which is 4 per cent with two per cent swing any of the direction. Retail inflation in last five months has been in excess of 6 per cent. Unless, retail inflation in September 2020 declines sharply to around 4.5 per cent, the retail inflation in three consecutive quarters will exceed 6 per cent and monetary policy committee will have to respond to the government on the steps taken to keep inflation in 2-6 per cent range. Rajani Sinha, Chief Economist at Knight Frank India, said that CPI inflation in August has remained above RBI’s comfort zone. The concern is that sustained high inflation over the last few months will result in inflationary expectations inching up. This in turn will put further upward pressure on actual inflation. The high inflation currently is mainly because of supply-side factors, while demand side inflation remains subdued because of economic uncertainties. “ “Going forward, as the economy unlocks and supply-side bottlenecks ease, CPI inflation should come under control. As inflationary pressure eases in the next few months, the RBI is likely to cut policy interest rate further,” she said.