The 17-month low inflation does not come as a surprise; though initially there had been some concerns of flood related impact on commodity prices. The inaction on electricity and gas tariffs and the softening of global commodity prices were always destined to keep inflation under control.
On a positive note, stern administrative efforts and smoother supplies ensured that perishable food items inflation did not shoot up month-on-month. Perishable food inflation has mostly been the cause for higher inflation in the previous few months.
A slight upward quarterly revision in house rent category slightly raised the bar for housing, water and electricity sub-index. The power tariffs revised upward October last year had been a major factor driving the housing sub-index, with a 15.82 percent increase reported in electricity component. In October 2014, electricity tariffs showed a zero percent change year-on-year, as the government has decided against or failed to raise the tariffs, despite the IMFs wish.
With oil prices down and expected to remain south in the near future, more respite is in the offing as far as transport sub-index is concerned. The massive downward revision in petroleum product prices is yet to have its impact on CPI, and needless to say it will be a good one to keep CPI in check. Further inaction to do absolutely anything regarding gas prices, means CPI would largely be dictated by food commodities, with other major heavyweights subdued.
Falling oil prices offer a good window of opportunity to the government to work around the power tariffs. Now is the time to raise the base tariff slightly, it would not have a severe impact on end users, especially when they are likely to benefit from reversal in fuel adjustment surcharge. It may not make political sense at the moment, but it is a bitter pill which could now be swallowed the easiest.
Comments
Comments are closed.