U.K. jobless rate rises to 4.8 pct in Q3 2020, labor market likely to deteriorate further in months ahead
February’s soft inflation readings to make way for RBI to cut rates in April
India’s WPI and CPI inflation numbers for February came below expectations. CPI inflation decelerated to 5.2% y/y in February from January’s 5.7%, mainly due to weaker food prices, whereas core inflation accelerated. Meanwhile, WPI inflation decelerated -0.9% y/y, implying weak manufacturing pricing conditions and tradable pressures.
In February, food inflation declined to 5.3% from January’s 6.8%, with major slowdown amongst the sub-components. A sharp decline was seen in Vegetables, dropping to 0.7% y/y, as compared with 6.5% in January. This was also helped by high base effects in 2015. Meanwhile, despite low fuel prices, the transport sub-component increased on fading base effects.
Core inflation, excluding fuel and food, accelerated above 5% from Q4’s 4.6% as a rise in education costs were countered by lower health services. Fluctuations in food price readings have been the main reason for January’s stronger and February’s softer surprise.
Underlying conditions hint towards a sequential decline in food prices that are expected to bode well for the FY16/17 inflation outlook. Inflation is likely to average 5.4% in 2017, as compared with the expected 5% in 2016. At present, the inflation readings are much below the RBI’s target rate and the government is delivering on its fiscal targets. With that, the central bank is likely to lower interest rate by 25bp during its April meeting. Thereafter, the central bank is likely to pause as further disinflation to keep inflation lower than 5% will be difficult amidst the likelihood of a rebound in aggregate demand conditions, oil price stabilization and partial implementation of pay commission proposals.
Hence, likelihood of aggressive rate cut is not expected to be entertained. Later in 2016, the plans to amend the RBI Act will finalise the formation of the monetary policy committee. The panel is likely to have three members nominated by the government and the remainder from the RBI, including the governor. The governor will be heading the panel have the casting vote. The current arrangement is expected to be replaced by the panel.