Retail Inflation For January Eases To 5.07%, IIP for December at 7.1%

"Factory goods price inflation continued to slow, with food prices falling in January".

The main upward effect came from prices for a range of recreational and cultural goods and services, in particular, admissions to attractions such as zoos and gardens. Industrial Production for December grows at 7.1% in comparison to last year's 2.4% for December.

Inflation has been climbing steadily since the beginning of a year ago but many have predicted it has peaked at around 3%. Prices of fruits, too, rose at a slower pace of 6.24 per cent last month, against 6.63 per cent recorded in the previous month.For the fuel segment, inflation was 7.73 per cent in January compared to 7.90 per cent in December.

The RBI said its decision to keep its repo rate, or short-term lending rate for commercial banks, unchanged is consistent with the neutral stance of the central bank aimed at achieving its median inflation target of 4 per cent.

Sterling rose 0.3% against the dollar to $1.38 following the figures.

The trio at Edelweiss further said that November 2017 IIP stood at near 5-year high.

Yet many economists and market strategists believe the fears about inflation are overdone.

Independent economists attributed the high growth in two consecutive months to a low base when industrial output had collapsed due to the impact of demonetisation in late 2016. It will also mean slightly higher interest rates than we've been used to. Presumably bond traders looked at the same numbers that Asia Unhedged looked at, and concluded that the price fluctuations of clothing during after-Christmas sales would not determine the policy of the world's most important central bank.

"Inflation could fall away more sharply than expected between now and May", she says. "The bank's forecasts are based on a smooth Brexit transition, and you'd be forgiven for thinking that things might be bumpier, for a while at least".

Interest rates have been historically low for years.

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Investors have been pricing in a good chance that rates would rise in May, with a second rise later this year, probably in November.

"Persistent inflation also has implications for the UK's ongoing cost-of-living squeeze".

With the January inflation report, the government incorporated some methodology changes.

Mel Stride, the Financial Secretary to the Treasury, said: "The good news is that inflation is expected to fall this year".

- U.K. Consumer Price Index (CPI) to Narrow to Annualized 2.9% from 3.0% in December.

With the CPI data of USA being announced this week, this is an important inflation measurement.

Adjusted for inflation, hourly wages rose a modest 0.8% over the past year factoring in a small decline in January.

"This is a disaster for households, many of which are about to be clobbered with inflation-busting increases for bills such as council tax".

Finance Minister Arun Jaitley, in his budget speech, announced a slew of rural and healthcare policies that are likely to increase inflationary pressure, thereby making it hard for the RBI to tinker with the interest rates.

Retail sales fell 0.3 percent in January from the previous month, the most since February 2017, according to the Commerce Department, compared with the median estimate of economists for a 0.2 percent increase.

  • Rita Burton