For two successive months, inflation has come in at less than 1 per cent. What are its implications for the economy? First, the low CPI inflation rates are in part due to the statistical base effect of high numbers last year. Households are not too convinced about low inflation. The RBI surveys on inflation perception reveal that in November, households put inflation at 6.6 per cent and the three months ahead rate was 7.6 per cent. While these numbers are lower than in the previous survey rounds, these figures do show that perceptions are quite different on the ground.

Second, these numbers are a conundrum for the RBI when it comes to interest rates. In December, when the MPC lowered the repo rate, inflation was low and growth very buoyant. In February, when the........

© Indian Express