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