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Informist, Thursday, Jan. 9, 2025

 

By Shubham Rana

 

NEW DELHI – India's headline retail inflation rate likely moderated to a four-month low of 5.3% in December thanks to a fall in food prices, particularly those of vegetables, according to an Informist poll of 15 economists. CPI inflation stood at 5.48% in November and 5.69% in December 2023. The statistics ministry will release CPI data for December at 1600 IST on Monday.

 

"After a shocker inflation print in October of 6.2% and continued high food prices in November, food prices have begun to fall in December, and furthermore in January," HSBC economists said in a report earlier this week. "This is good news because prices seem to be falling despite a late onset of winter impacting the sowing of some crops like potatoes, and a shortage of specific fertilisers impacting others, like mustard," they added.

 

According to data from the Department of Consumer Affairs, retail prices of tomato, onion, and potato were down 12.4%, 11.7%, and 2.3%, respectively, in December from November. Prices of pulses and rice also fell. On other hand, wheat and edible oil prices rose sequentially in December, albeit at a slower pace than the previous month.

 

After falling to around 5% in Jul-Aug because of a favourable base, food inflation increased rapidly to a 15-month high of 10.87% in October before edging lower to 9.04% in November. Inflation for the 'food and beverages' group also moved similarly, easing mildly to 8.20% in November. Economists expect it to have declined further to around 7.7% in December.

 

"The outlook on inflation looks positive as prices of tomato, onion, and potato (are) witnessing even further correction," said Aditi Gupta, an economist at Bank of Baroda. "With mandi arrivals picking up, prices are expected to moderate further in the coming months," she added.

 

Underlying demand conditions for items other than food are unlikely to have changed much in December, with core inflation--or inflation excluding food and fuel--seen close to November's print of 3.7%. "Lower gold prices will likely be offset by a rise in prices of personal care products led by higher palm oil prices," said Teresa John, economist at Nirmal Bang Institutional Equities, in a report.

 

RATE CUT AHEAD?

The December inflation number will be the last one available to the Reserve Bank of India's Monetary Policy Committee before it announces its decision on Feb. 7. After six years, the committee's decision will be delivered by someone other than Shaktikanta Das, with Sanjay Malhotra taking charge last month as the governor of the Indian central bank.

 

The change in the leadership has also sparked hope of the MPC finally lowering interest rates, especially with inflation cooling somewhat--it crossed the upper-bound of the RBI's tolerance band of 2-6% in October--and growth slowing down alarmingly to a seven-quarter low of 5.4% in Jul-Sept. And as per the statistics ministry's first advance estimate of GDP for 2024-25 (Apr-Mar), growth this year will moderate to a four-year low of 6.4%, 20 basis points lower than the 6.6% the RBI had projected in December.

 

Last month, the MPC left the repo rate unchanged at 6.50% for the 11th consecutive meeting after having loosened its stance to neutral in October. December also saw the RBI cutting banks' Cash Reserve Ratio by 50 bps to the pre-pandemic level of 4.00% of their net demand and time liabilities.

 

According to Nomura, growth has been a "mixed bag" during Oct-Nov, with early data for December not indicating a strong rebound. "We believe India is in the midst of a cyclical growth slowdown, led by headwinds from fading urban pent-up demand, tight monetary policy, household balance sheet stress, slowing nominal income growth and a negative credit impulse," it added.

 

If CPI inflation does fall to 5.3% in December, it would bring the average for Oct-Dec to 5.7%, in line with the RBI's latest forecast for the quarter. The central bank sees inflation averaging 4.5% in Jan-Mar, 4.6% in Apr-Jun, and 4.0% in the second quarter of FY26.

 

The following is a summary of the poll on CPI inflation in December:

 

ORGANISATION	CPI INFLATION ESTIMATE
Bank of Baroda	5.0%
India Ratings and Research	5.0%
RBL Bank	5.05%
ICRA	5.1%
Nirmal Bang Institutional Equities	5.2%
Union Bank of India	5.2%
YES Bank	5.26%
Acuite Ratings and Research	5.3%
HDFC Bank	5.3%
HSBC	5.3%
ICICI Bank	5.39%
ICICI Securities Primary Dealership	5.4%
IDFC FIRST Bank	5.4%
Motilal Oswal Financial Services	5.4%
CareEdge Ratings	5.5%

 

End

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Edited by Akul Nishant Akhoury

 

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