Easing Inflation Sustainable For Indian Market?

The record low in inflation rate is a positive sign for both the government and the people. When Prime Minister Narendra Modi took his office, the inflation rate was around 6.7% and now in 2017, it is around 3.9%. India now calculates its inflation rate through Consumer Price Index or CPI. Early it was calculated on the basis of Wholesale Price Index.

REASON FOR RISE IN INFLATION RATE:

The demand and supply factor is most important. When the demand is high and supply is low, then there is rise in inflation. Domestic factors include hording of commodities, corruption, influence of middlemen and weak governance. Due to hording and less supply, the price of onion went up to 100-120 Rs/kg in 2016 mid and that directly impacts the common people.

In recent few months, India has benefited much due to lower crude oil rates. Now the rate per barrel has crossed 50$ and is now $53.20 per barrel. It is expected that there will be further rise which can impact the inflation rate and will thus impact your budget.

IMPACT OF HIGHER INFLATION ON INDIAN MARKET:

Higher rate will definitely impact the Reserve Bank’s policy on repo and reserve repo rate. It is expected that the RBI may reduce repo rates for next quarters due to lower inflation rate. This will allow the commercial banks to reduce interest rates and especially the business loans.

The CPI rate is going average with 130.5 and the WPI is at record high in 5 years presently at 5.25%. Generally, the rising inflation affects the common citizens and small enterprises that have to purchase goods and borrow money from banks at higher interest rates.

FUTURE OUTLOOK:

According to International Monetary Fund (IMF), the inflation in India will be around 4-6% or exactly 5% till 2020. The CPI rate will be around 130 for the last quarter of 2017. The RBI interest rate will be around 6% till the end of 2017 and will be around 4.75% by 2020, which is good news for you.

 Due to decrease in repo rate, the bank lending rate will be around 9.2 to 7.75 for 2017 end and 2020 respectively. Inflation is a bigger issue in India especially in elections. The NDA government came to power citing failure of UPA government to curb higher inflation which went to record 11% in 2011.