India inflation likely fell to a 5-month low in April: Poll

Indian retail inflation eased to a five month low in April as the nationwide lockdown imposed to try to quell the spread of the coronavirus and subsequent sluggish demand drove price pressures down, a Reuters poll found.

The May 5-7 poll median of more than 40 economists predicted India’s annual consumer price inflation fell to 5.68 per cent in April from March’s 5.91 per cent, still above the Reserve Bank of India’s (RBI) medium-term target of 4.00 per cent.

Forecasts in the poll ranged between 4.50 per cent and 7.00 per cent and about 80 per cent of participants expected inflation to be below the upper band of the RBI’s inflation target range of 2.00-6.00 per cent.

“The economic inactivity caused by the lockdown has been a big driver for inflation in April, leading to a broad-based deceleration in price pressures across all components except food,” said Rini Sen, India economist at ANZ.

“Although food prices rose in the month – owing to larger supply side constraints – it was more than offset by weaker price pressures across all other components, including domestic fuel prices.”

While the lockdown was extended to May 17, the government has allowed “considerable relaxations” in lower-risk districts, which might help lift the economic slowdown experienced since March.

That inflation rate, if realised, would allow the central bank to keep policy loose to combat the unprecedented impact of the pandemic which has battered the economy.

“Low inflation is definitely resulting in a more comfortable position for the RBI compared to the stagflation conditions seen at the beginning of the year and opens up possibilities for yet another significant cut this quarter,” said Hugo Erken, head of international economics at Rabobank.

Moreover, expectations of average, or normal, monsoon rains this year raises the chances of higher farm output in Asia’s third-largest economy.

“Forecasts of a good monsoon harvest suggest food prices will remain anchored. With an imminent recovery in economic activity looking highly unlikely, inflation is likely to ease back below the RBI’s 4.00 per cent target within the next few months,” noted Darren Aw, Asia economist at Capital Economics.

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