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Charts & Analysis

Lowest CPI Inflation Since 2012 at 6.46% in Oct 2014; RBI Very Likely to Cut Rates

Consumer Price Inflation for Sep 2014 came in at a low 6.46%, on the back of:

  • lower crude prices and,
  • a high base last year

This chart, though, explains it all. It’s actually coming down no matter which way you look at it. This is the lowest CPI inflation recorded since 2012 (since the new CPI Index came about).

And the best thing: even month on month, the index is flat, meaning: low inflation is not just because of the base effect, it’s even down month on month.


And it’s everybody’s party, with both rural and urban inflation below 7%:


Food prices are softening, it seems, and indeed, everything’s falling. Food is the heaviest weight in the index. Housing, too, has receded to 8.1%, and Fuel too has fallen to just +3.5%.


This is solid data for a fall in interest rates. RBI will probably wait for one more data point (mid-November) before it decides to cut rates. We should however expect that RBI can cut rates mid-way and not wait for a policy date (which is in early December), if the situation gets really bad (low growth + increase in NPAs). While this is bullish news, the fact that there is a global slowdown might weigh on us in the shorter term. I wonder if the RBI will take a call immediately, or choose to wait for one more month?

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