India’s Inflation Story: Here are five key things you should know
India awaits the November CPI inflation data, set to be released on December 12. Here are five things you should know about the country's inflation story.
India's inflation is at its 14-month peak, according to October 2024 data from the Ministry of Statistics and Programme Implementation (MoSPI). As policymakers try to curb the rising inflation in the country, driven by the fastest vegetable price rises in nearly four years, market experts weigh in to provide an outlook for the inflation trajectory.
5 things to know ahead of inflation data release
1. India's Inflation Trend: The Consumer Price Index (CPI) is a macroeconomic indicator for India's headline inflation. According to data released by the Ministry of Statistics and Programme Implementation on November 12, India's consumer price index (CPI) inflation rose to 6.2 per cent in October 2024, compared to 5.49 per cent in September 2024.
The country's retail inflation rose to a 14-month high, the highest level since 6.83 per cent in August 2023. The inflation was primarily driven by the rising food prices, breaching the Reserve Bank of India's (RBI) tolerance band of 2 to 6 per cent. The November 2024 CPI inflation data is set to be released on Thursday, December 12, on the MoSPI website.
The ministry data also highlights that the nation's inflation figures have been rising since the last fall in July. The CPI inflation for July was at 3.6 per cent, which dropped from its 5.08 per cent level in June.
2. Finance Ministry's Inflation Target: Finance Minister Nirmala Sitharaman, while presenting the Union Budget for the financial year 2024-25 in July, announced that the Government of India's target for inflation remains at 4 per cent.
The finance minister also highlighted that the nation's inflation “continues to be low, stable and moving towards the 4 per cent target,” according to the Ministry of Finance's official statement citing Sitharaman.
“Inflation globally is a big challenge. It doesn’t respect borders and is so contagious that no country’s efforts today are entirely successful,” said Sitharaman at the CII Global Economic Policy Forum, according to an earlier report by Mint.
The finance minister also highlighted that it was important to “restore some normalcy”.
3. Performance of economy: Brokerage Kotak Securities, in a Market Outlook 2025 report, highlighted that India's CPI inflation exceeded its expectations of 5.6 per cent in October. The inflation indicator also overshot the upper bound of the RBI's target range after September 2023.
The country's food inflation rose 10.9 per cent year-on-year due to the sharp rise in the vegetables, oils and fats, eggs, and fruit prices. The brokerage pegged November's CPI inflation data expectations at 6 per cent. Rural inflation in India continues to be relatively higher than that of the urban area.
4. RBI Rate Cut Expectations: According to the brokerage Kotak Securities, the Reserve Bank of India is expected to delay its rate-cut cycle. Many economists expect the RBI to kick off the rate-cut cycle at its next monetary policy review in February 2025.
The brokerage said in a market outlook 2025 report released on December 9 that the central bank is expected to cut 75 basis points throughout the cycle.
India's “food price shock” could have been an upside risk of nearly 120 basis points to the RBI's third-quarter CPI forecast of 4.8 per cent and around 40 basis points for its FY 2025 forecast of 4.5 per cent, as per the report.
“Growth momentum has started to show signs of fatigue with the slowdown persisting in H2FY25. A cyclical slowdown could eventually be supportive of rate cuts,” noted Shrikant Chouhan, head of equity research at Kotak Securities, in its December report.
The brokerage also cited uncertainty in the global policy environment, such as US trade policy, the geopolitical scenario around the world, and flight of capital fears as reasons to keep the RBI cautious in the near term.
5. Global Economic Stability: The inflation-easing situation in the global economy is evidence of the resilience of global commerce. According to its December report, Kotak Securities is cautiously optimistic about the global economic outlook.
The United States has successfully waded through a difficult phase on inflation, with a 75 basis point rate cut and upcoming expectations are for one more potential interest rate cut this year and a 100 basis point rate cut in the year 2025, according to the brokerage.
Kotak Securities also highlighted that recession fears still loom over Europe, but the markets are gaining confidence in the European Central Bank (ECB), that it has more room to manage the 75 basis point US Federal Reserve rate cut.
On the Asian markets front, the brokerage cited that the Asian economies “look good,” led by the People’s Bank of China cutting its 14-day repo rate and reverse repo rates, cutting reserve requirement ratio (RRR) by 50 basis points, lowering mortgage rates for existing loans and increase its debt.
On the Eastern seaboard, the Bank of Japan has also indicated that the central bank is not rushing to hike rates and the monetary policy is “turning a corner with an expected return to loosening in the majority of countries and regions,” according to the brokerage house.
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Business NewsEconomyIndia’s Inflation Story: Here are five key things you should know
First Published:11 Dec 2024, 10:16 PM IST
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