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  3. Fall in vegetable prices to bring inflation lower to 6.5% in December: C Rangarajan

Fall in vegetable prices to bring inflation lower to 6.5% in December: C Rangarajan

23 Dec 2013 Evaluate
In a potential good news for the economy, Prime Minister's Economic Advisory Council (PMEAC) Chairman C Rangarajan, underscored that he expects, a fall in vegetable prices to likely ease the headline inflation and retail inflation to 6.5 percent and 9.20 percent respectively in December. Further, he added that some of the things that have really pushed up inflation are vegetables like onion prices, which have crashed in December and therefore the economy will see retail inflation coming down by 2-2.5 percentage from the current level of 11 percent or so and wholesale inflation by 1 percent, by mid-January.
 
It needs to be noted that RBI, left key policy rates unchanged in its December mid-quarter policy review and pointed that it would have to act accordingly, if the expected softening of food inflation does not materializes and translates into a significant reduction in headline inflation in the next round of data releases, or if inflation excluding food and fuel does not fall. These views came after Wholesale price-based inflation (WPI) accelerated to 14- month high of 7.52 percent in November, while retail inflation quickened to 8-month high of 11.24 percent during the month. Meanwhile, quoting an econometric study, the PMEAC  chief and the former RBI governor pegged the threshold inflation level at around six percent, but underscored there was a need to look at the slightly lower, as the level is much higher than what many other countries in the world. 
 
Further, Rangarajan blamed the delay in the completion of the projects for the snail-paced economic growth in the last few years. He highlighted that the economic growth had declined more steeply than warranted by the decline in investment and added that he expects the economy to grow by 5 percent in the current fiscal. Nevertheless, exuding confidence, he pointed that the existing level of investment rate should enable the economy to grow at 7.5 percent in the short run, while the potential growth rate of 8.5 percent could be achieved with some pick up in domestic savings rate, narrow current account deficit and sustained level of capital output ratio at around 4:1.

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