Indian consumer price inflation accelerates in February, likely to remain below 3 percent until September

Indian headline inflation accelerated in February for the first time in five months, as the fall in food prices was milder than in prior months. However, overall inflationary pressures continue to be weak, with core rate easing for the second consecutive month.

On a sequential basis, the consumer price inflation rose 2.1 percent after falling for two straight months. On a year-on-year basis, the headline inflation came in at 2.57 percent, as compared with market expectations of 2.40 percent. The year-on-year figure of January was downwardly revised to 1.9 percent from the initial figure of 2.05 percent.

The main reason for the upside surprise in annual inflation was a milder fall in food prices (-0.07 percent year-on-year). Nevertheless, food inflation was negative for the fifth consecutive month, driven by prices of vegetables, sugar, fruits and pulses.

All other major components of inflation either stayed the same or eased on a year-on-year basis compared to the previous month. The biggest easing was in the ‘fuel and light’ component that decelerated to 1.24 percent year-on-year in February from 2.12 percent in January. This is largely linked to an easing in domestic fuel prices.

In all, price pressures remain weak, as seen in core inflation which eased to 5.30 percent year-on-year from January’s 5.36 percent.

“We anticipate inflation to remain below 3 percent until September. Not only should this inflation trajectory allow the RBI to cut the policy repo rate by another 25 bps to 6.00 percent in its forthcoming meeting in April, it could open up the door for deeper rate cuts further out”, added ANZ in a research report.