Despite easing inflation, it is not yet time to bet on rate cuts

The clamour for rate cuts became louder after January’s headline inflation stood at 6.5 per cent. However, what makes January’s print more relevant is for the first time in 12 months, ‘core’ inflation, or non-food manufactured inflation, has fallen below the seven per cent level. So far, the fall in inflation has been driven by lower food prices. But now, even core inflation seems to be easing.But it’s too early to rejoice. As Leif Eskesen, Asean economist at HSBC, explains, a big part of the steep decline in headline inflation in January can be explained by the high base last year, when excess rains destroyed crops and led to a spike in food prices. Improved food supplies in 2011 have also helped contain food inflation.

Source: Business Standard