Low retail inflation

Why in news?

Consumer price inflation had slipped to 1.54%.

Why there is a reduced inflation?

• Activity in the manufacturing sector has also slowed down.
• GST-related adjustment and subsequent destocking may have reduced industrial growth.

Why it is a matter of concern?

• Moderate inflation levels are needed to drive consumption, under the assumption that higher levels of spending are crucial for economic growth.
• Monetary Policy Committee (MPC) fixed the inflation levels to maintain in the zone between 2 and 4%.

What is now expected of the RBI?

• RBI has been maintaining the Repo rate at 6.25% since October 2016.
• Since the inflation is lower now, a cut in the rate is expected.

Why RBI should be cautious before lowering Repo?

• Several State governments have taken fiscally expansive measures like loan waivers.
• This is will increase the purchasing power of people which in turn might increase the inflation.
• The monsoon and its effect on prices is yet to be felt.
• The impact of the introduction of the GST, will reflect in the prices.
• Increased allowances under the Seventh Central Pay Commission’s award could also transmit into price gains.

• All these would have had a complementary effect of low inflation.

Source: The Hindu