DNA Money Edit: Inflation down further, time ripe for RBI to cut rates

There is good news on the inflation front. Retail inflation has dropped to the historically low level of 1.54 % in June in tandem with the prices of vegetables, pulses and milk products. According to the data released by the statistics office on Wednesday, retail inflation declined to 1.54% in June from 2.1% in May. In July 2016, the retail inflation had crossed the threshold of 6%.

As another set of data showed a further slip in India's industrial growth to 1.7% in May below the downwardly revised figure of 2.7% for April, the market is pinning its hope on an interest rate cut. The Reserve Bank of India (RBI) will be prompted to give a much-needed boost to the sagging industrial sector when it reviews the policy rates next month.

Will inflation remain muted during the rest of the fiscal? There are concerns that a reversal of the favourable base effect could result in food and headline inflation rising sharply, and exceeding 4% during the second half of the current financial year. Similarly, the transition to the goods and services tax (GST) could see some price hikes, though some sectors such as automobiles have seen a definite drop in prices. Some analysts are of the view that most companies may choose to observe the impact of the GST on final prices over a period of time, before revising prices.

Good monsoon has contributed to a surge in sowing of most crops other than jute. On the flip side, crude oil prices have increased only moderately, and it is unlikely to pose any risk in the immediate term.