New Delhi: Retail inflation slowed to a four-month low of 5.22 per cent in December compared to 5.48 pc in November, mainly due to the easing of prices in food baskets, according to government data released on Monday.
The inflation based on the Consumer Price Index (CPI) was 5.48 per cent in November and 5.69 per cent in December 2023.
According to CPI data released by the National Statistics Office (NSO), the inflation in the food basked reduced to 8.39 per cent in December. It was 9.04 per cent in November and 9.53 per cent in December 2023. "The CPI (General) and food inflation in December 2024 are the lowest in the last four months," the NSO said.
Last month, the Reserve Bank of India raised the inflation projection for the current fiscal year to 4.8 per cent from 4.5 per cent. It also said the lingering food price pressures are likely to keep headline inflation elevated in the December quarter.
The CPI-based headline inflation increased from an average of 3.6 per cent during July-August to 5.5 per cent in September and further to 6.2 per cent in October 2024.
Chief Economist, CareEdge, Rajani Sinha told ETV Bharat that in December, the CPI inflation moderated to 5.2% from 5.5% in November, primarily due to a slowdown in food inflation. The inflation rate for vegetables continued to ease, dropping to 26.6% in December from 29.4% in November. Vegetable inflation has been a significant contributor to overall CPI inflation in recent months, averaging ~ 36% since September. Just by excluding vegetables, CPI inflation stood at 3.9%, below the RBI’s target of 4%. In addition to the decline in vegetable inflation, ongoing deflation in spices and a fall in inflation of pulses and sugar have further contributed to the overall decrease in food inflation. However, the inflation for edible oils has increased, remaining in double-digit territory for the past two months. Meanwhile, core inflation continues to remain subdued, staying below the 4% mark over the past year.
The outlook for agriculture remains positive, with good Kharif production. Prospects for Rabi sowing also remain conducive to healthy reservoir levels. The Rabi sowing has progressed well and is up marginally compared to last year as of the end of December 2024. As a result, inflationary pressures within the food basket should continue to ease. However, given our import dependence on edible oil, it would be crucial to monitor inflation in this category amidst high global edible oil prices and the recent hike in import duty on this item, she added.
According to Rajani Sinha, "Subdued global commodity prices amid concerns over global demand should further support the moderation of headline inflation going forward. In December, the Bloomberg commodity price index declined by 1% YoY, and Brent crude prices fell by 5.4% YoY. However, it is crucial to monitor geopolitical developments closely, as these could significantly influence global commodity markets and supply chains. Expected moderation in inflation in coming months, will allow the MPC to consider a policy rate cut amid slowing growth. We anticipate that headline inflation will fall below 5% by Q4 FY25, driven by a moderation in food inflation. This would create an opportunity for the MPC to consider a 25-bps reduction in policy rates in the February meeting. We expect inflation to average 4.8% and 4.5% in FY25 and FY26 respectively."
Chief Economist and Head of Research & Outreach at ICRA Limited, Aditi Nayar said while the CPI inflation declined to 5.2% in December 2024 from 5.5% in November 2024, the pace of the correction was narrower than expected. In sequential terms, the dip was driven by food and beverages, even as the YoY inflation for fuel and light, and pan, tobacco and intoxicants recorded mild upticks.
The sharp sequential fall in vegetable prices in January 2025 is likely to augur well for the food and beverages inflation print for the month, which is expected to ease to a five-month low of ~6.0-6.5% in the month from 7.7% in December 2024. Consequently, ICRA estimates the headline CPI inflation to soften to ~4.5-4.7% in January 2025 from 5.2% in December 2024.
With the headline inflation stuck stubbornly above 5.0%, the probability of a rate cut in the Feb 2025 policy review has certainly receded. However, the considerable decline in vegetable prices that is underway could convince some MPC members to consider an early cut in the upcoming meeting, to support growth. It will be interesting to see the views of the MPC members on the timing of a rate cut amidst the recent depreciation of the INR vs. the USD. (with PTI inputs)
