Uptick in retail inflation warrants vigilance: RBI

Mumbai: Uptick in retail inflation in the last two months, especially in non-food items, warrants vigilance, Reserve Bank Governor Raghuram Rajan said today.

"While oil prices, barring geopolitical shocks, are expected to remain benign for a few quarters more, the uptick of CPI (Consumer Price Index) inflation excluding food and fuel for two months in succession warrants vigilance," he said in the 5th bi-monthly monetary policy review for 2015-16.

Rising for the third straight month, retail inflation climbed to 5 per cent in October, as against 4.62 per cent in the same month last year, due to pulses and other food items becoming costlier.

CPI or retail inflation - excluding food, fuel, petrol and diesel - also rose for three consecutive months on account of price increases in categories such as housing, recreation and amusement, and personal care and effects, the RBI monetary policy review said.

Within this broad category, education and health services contributed most to the inflation. Households? inflation expectations remain elevated although they have edged lower recently, perhaps in response to lower prices of petrol and diesel, it said.

Rising trend of retail inflation is expected to be plateauing after December.

"As anticipated in our previous policy, retail inflation measured by the consumer price index (CPI) increased for the third successive month in October 2015, pushed up by a surge in the monthly momentum. Food inflation rose sharply in October, driven especially by pulses," it said.

Although the seasonal moderation in prices of vegetables and fruits is expected to provide some respite, the El Nino induced shortening of winter may limit this effect, it said.

Early indications of rabi sowing together with low reservoir levels suggest that astute supply management by the central government, including close coordination with State governments, is necessary to minimize any shortfall in the rabi crop, it said.

"Taking all this into consideration, inflation is expected to broadly follow the path set out in the September review with risks slightly to the downside," it said.
RBI projects retail inflation to at 5 per cent by March 2017, it said.