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Retail inflation cools off to 6.44% in Feb on softening food prices

India's headline retail inflation rate edged down to 6.44 percent in February from a three-month high of 6.52 percent hit in January, data released by the ministry of statistics and programme implementation showed.

At 6.44 percent, the latest Consumer Price Index (CPI) inflation print falls in line with consensus estimates. In a Moneycontrol survey, economists expected inflation to ease to 6.4 percent in February.

Retail inflation has now been above the Reserve Bank of India's (RBI) medium-term target of 4 percent for 41 months in a rowThe minor eight-basis-point decline in retail inflation comes after it rose far more than expected to 6.52 percent in January.

However, the statistics ministry stood by its estimates.then reported that the unexpected increase was being caused by the government's provision of free foodgrain through the Public Distribution System (PDS) under the National Food Security Act.

As per an internationally-accepted methodology, free social transfers in kind — such as goods and services provided free of charge to households by governments — are to be excluded from the scope of the CPI. As such, the weight of two items in the CPI basket — PDS rice and PDS wheat/atta, accounting for 0.54 percent of the CPI basket — was cut to zero and their weight distributed pro-rata to other items in the food group.

The latest inflation reading of 6.44 percent is the second consecutive month that it has come in above the 6 percent upper-bound of the RBI's mandated target range, taking the average for January-February to 6.5 percent, as against the central bank's forecast of 5.7 percent for the current quarter.

While it piles pressure on the Reserve Bank of India's Monetary Policy Committee (MPC) to deliver another repo rate hike in early April, it is unclear how the rate-setting panel will treat the higher inflation prints caused by the statistical effect due to the change in computation methodology on account of the free PDS foodgrain.

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