Creating more leg room for the central bank to lower rates to boost industry, retail inflation eased to a 13-month low as food items such as vegetables and pulses became cheaper.

Official data released on Thursday revealed that consumer price index (CPI) based inflation eased to 4.31 per cent in September as against 5.05 per cent in August. It was 4.41 per cent in September 2015.

Similarly, consumer food price inflation also eased to 3.88 per cent in September – the same level as it was a year ago. In August 2016, retail food inflation had risen to 5.91 per cent.

Amongst food items, inflation rate of vegetables contracted to 7.21 per cent in September from a 1.02 per cent growth in August.

Similarly, prices of pulses eased by 14.33 per cent in September as against 22.01 per cent in the month ago.

However, the inflation rate for sugar and eggs rose marginally in September by 25.77 per cent and 9.94 per cent respectively.

Overall retail inflation in the food and beverages basket eased by 4.12 per cent in September from 5.83 per cent in August.

Retail inflation in the fuel and light basket however, rose by 3.07 per cent in September from 2.49 per cent in the month ago. It also rose by 4.51 per cent (4.18 per cent in August) in the miscellaneous category in September.

Analysts expect that retail inflation will fall further in the coming months and create more space for the Reserve Bank of India to lower interest rates.

“The positive impact of a favourable monsoon this year is starting to reflect in lower food prices. Going ahead, we expect inflation to trend lower and average 4.8 per cent in the second half of fiscal 2017, because of the good monsoon and supported by steps taken by the government to manage food supply,” said Crisil, adding that inflation will average at 5 per cent this fiscal.

“The change in the RBI’s stance with respect to real interest from 1.5 per cent to 2 per cent range to 1.25 per cent coupled with pushing the 4 per cent inflation target to March 2021 from March 2018 may provide RBI additional space for monetary easing in the near term,” said Sunil Sinha, Director and Principal Economist, India Ratings.

The RBI in its policy review on October 4 had cut the repo rate by 25 basis points to a six-year low of 6.25 per cent. Its next policy review is on December 7.

Pressure points However, Sinha warned of “pressure points” that need to be monitored including the rising trend in cereal prices, rise in the prices of transport and communication services and the likely impact of government announcement on house rent allowance as and when announced.

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