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Informist, Monday, Jan. 13, 2025

 

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--India Dec CPI inflation 5.22% vs 5.48% Nov
--Informist poll estimated India Dec CPI inflation at 5.3%
--India Dec CPI food inflation 8.39% vs 9.04% Nov
--India Dec CPI rural inflation 5.76% vs 5.95% Nov
--India Dec CPI urban inflation 4.58% vs 4.89% Nov
--India Dec CPI combined index down 0.6% on month
--India Dec CPI food price index down 1.5% on month
--India Dec CPI cereals and products index up 0.4% on month
--India Dec CPI vegetable index down 7.4% on month
--India Dec CPI pulses and products index down 1.0% on month
--India Dec CPI oils and fats index up 1.1% on month
--India Dec CPI food, beverage index down 1.2% on month
--India Dec CPI housing index down 0.7% on month
--India Dec CPI clothing, footwear index up 0.2% on month
--India Dec CPI fuel and light index up 0.6% on month
--India Dec CPI miscellaneous index up 0.2% on month
--India Dec CPI core inflation 3.6% vs 3.7% Nov
--India Oct-Dec average CPI inflation 5.6% vs 5.7% RBI forecast

 

NEW DELHI – India's CPI inflation moderated to a four-month low of 5.22% in December from 5.48% in November, data released Monday by the statistics ministry showed. Headline inflation fell in the last month of 2024 thanks largely to a sequential fall in food prices, particularly those of vegetables.

 

At 5.22%, CPI inflation in December was slightly below the consensus expectation. According to an Informist poll, headline inflation was seen at 5.3% in December.

 

Like the headline number, CPI food inflation also eased to a four-month low, coming in at 8.39% in December compared to 9.04% in November, as food prices fell 1.5% month-on-month. This helped drive a 0.6% on-month fall in the general index of the CPI.

 

While inflation remains above the Reserve Bank of India's medium-term target of 4.00%, it has now fallen for the second consecutive month, with the average for the last quarter of 2024 coming in 10 basis points lower than the Indian central bank's forecast of 5.7%.

 

"In terms of the policy implications, today's data--combined with a slowing economy and the change of leadership at the RBI (Reserve Bank of India) to a seemingly less hawkish direction--suggest that the central bank will kick off the easing cycle at the next MPC (Monetary Policy Committee) meeting in February. We are forecasting a 25 bps cut to the repo rate to 6.25%," said Harry Chambers, assistant economist at Capital Economics.

 

The RBI's Monetary Policy Committee, which will sit down from Feb. 5-7, will have two new members at its next meeting, with Sanjay Malhotra replacing Shaktikanta Das as governor last month. Further, Deputy Governor Michael Patra's term ends Tuesday, with the government currently in the process of selecting his successor. Both Das and Patra had voted to leave the repo rate unchanged at 6.50% for the 11th meeting in a row in December, accounting for half of the four majority votes on the six-member panel.

 

WINTER DISINFLATION

 

As hoped by the RBI, food prices continued to fall in December and helped drag down headline inflation. Within food items, the largest sequential fall was posted by vegetables (down 7.4%), with the index for pulses and fruits down 0.9-1.0%. However, prices rose 1.1% on-month for edible oils, while the index for eggs surged 5.3%. According to economists, food prices should fall further in January, with Aditi Nayar, chief economist of ICRA, predicting food and beverages will ease to a five-month low of 6.0-6.5% from 7.69% in December.

 

"Nearly 88% of the final 2023-24 area has been sown so far in the ongoing rabi sowing season. Even if rabi sowing contracts by 1.4% year-on-year during the remainder of the sowing season, it will print at par with the total area sown in 2023-24. Given these trends, ICRA remains optimistic about the rabi crop, considering the favourable impact of high reservoir storage, ensuing La Nina conditions on sowing and crop yields, and improvement in stocks of DAP fertiliser by end-November 2024. This coupled with robust kharif foodgrain production should help ease inflationary pressures in the near term," Nayar said.

 

While Nayar sees headline inflation softening to 4.5-4.7% in January--data for which will be released on Feb. 12--another 5%-plus print has lowered the probability of a repo rate cut next month, she said. However, she noted that the "considerable decline in vegetable prices that is underway could convince some MPC members to consider an early cut in the upcoming meeting, with a view to supporting growth".

 

Economists are also mulling how members of the MPC assess the impact of the rupee's continued depreciation on domestic prices.

 

"While the projection for inflation for Q4 (Jan-Mar) of RBI is 4.5%, the present depreciation in the rupee will be an additional concern as this can lead to higher imported inflation especially on oil products. It does look like there could be a status quo on repo rate under these conditions, unless things change drastically on the forex front, which is unlikely," Madan Sabnavis, Bank of Baroda's chief economist, said.

 

On Monday, the rupee fell 61 paise against the US dollar--the most in nearly two years--to end at a record closing low of 86.5750 per dollar.

 

Food apart, prices ticked up in December, with the indices for clothing and footwear and the miscellaneous categories up 0.2% month-on-month, while the fuel and light index rose 0.6%. However, the housing index was down 0.7%. Core inflation, which excludes the volatile food and fuel items, was largely unchanged at 3.6% in December from November's 3.7%.

 

The following table details sequential and annual increase in the main components of the CPI (Combined):

 

	Weight	Index for December	Month-on-month change (in %)	Year-on-year change (in %)
				December	November
Cereals and products	9.67	198.1	0.4%	6.51%	6.88%
Meat and fish	3.61	222.5	(-)0.7%	5.30%	4.67%
Egg	0.43	212.1	5.3%	6.85%	4.84%
Milk and products	6.61	187.5	0.1%	2.80%	2.85%
Oils and fats	3.56	183.7	1.1%	14.60%	13.28%
Vegetables	6.04	258.3	(-)7.4%	26.56%	29.37%
Pulses and products	2.38	214.1	(-)1.0%	3.83%	5.41%
Sugar and confectionery	1.36	131.0	(-)0.6%	0.31%	1.31%
Spices	2.50	227.4	(-)0.3%	(-)7.41%	(-)7.43%
Food and beverages	45.86	205.9	(-)1.2%	7.69%	8.20%
Pan, tobacco and intoxicants	2.38	209.6	0.2%	2.49%	2.35%
Clothing and footwear	6.53	194.8	0.2%	2.74%	2.75%
Housing	10.07	181.7	(-)0.7%	2.71%	2.87%
Fuel and light	6.84	177.7	0.6%	(-)1.39%	(-)1.83%
Miscellaneous	28.32	186.5	0.2%	4.19%	4.26%
General Index	100.00	195.4	(-)0.6%	5.22%	5.48%
Consumer Food Price Index	39.06	206.7	(-)1.5%	8.39%	9.04%

 

End

 

Reported by Siddharth Upasani and Shubham Rana

Edited by Tanima Banerjee

 

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