February CPI at 3.65% vs 3.17% in January, highest since October 2016

February CPI at 3.65% vs 3.17% in January, highest since October 2016

India News

India’s consumer price inflation (CPI) inched up to 3.65% in February from 3.17% in January as food prices started rising, government data showed on Tuesday, as remonetisation pace picked up pace and spurred consumption demand. CPI food inflation firmed up to 2.01% in February from just 0.61% in the previous month. The spurt in CPI and WPI inflation adds to the worries of a pent up demand after demonetisation which may prompt Reserve Bank of India to keep policy interest rates unchanged for some more months. In the February monetary policy review, the RBI paused on rates as it expects inflation to firm up due to the rapid pace of remonetisation. Since 2015, RBI has lower rates by 175 bps while the government has stepped up spending and speeded up reforms to pump prime the economy amid feeble global recovery. CSO has projected economic growth is projected at 7.1% for 2016-17 as compared with 7.9% in 2015-16, on expectation of a fall out of demonetisation on the consumption demand during the second half of the fiscal year. Consumption and investment activity were dampened after Prime Minister Narendra Modi on November 8 announced the bold decision to scrap Rs 500 and Rs 1,000 notes. While the demonetisation weeded out Rs 15.44 lakh crore or 86% of currency from circulation, the government and RBI has been able to pump in about Rs 11.5 lakh crore worth of new notes so far.