India's retail inflation data expected tomorrow. Analysts estimate a rise in December CPI

India’s retail inflation, or consumer price index (CPI)-based inflation, likely rose for the second consecutive month in December, largely driven by unfavourable base effects and rising prices of pulses, tomatoes, and onions. This is, however, unlikely to prompt the Reserve Bank of India (RBI) to tweak its monetary policy in the upcoming meeting, as core inflation is moderating and the increase in food inflation was widely anticipated.

According to a Mint poll of 19 economists, India’s retail inflation likely rose for the second straight month to 5.9 per cent in December 2023.

The predictions in the poll ranged between 5.5 per cent and 6.4 per cent, with six economists expecting inflation to be at or above 6 per cent, the upper tolerance limit of the RBI’s inflation-targeting mandate, Mint reported.

India's CPI-based inflation was at 4.87 per cent in October. However, it rebounded in November to a three-month high of 5.5 per cent.

The December CPI print is due on Friday, January 12.

According to Aditi Nayar, Chief Economist at ICRA, the reversal in vegetable prices as well as a supportive base going forward is expected to cool the inflation prints to an average of 5 per cent in the March-ending quarter.

The RBI expects average inflation in this quarter at 5.2 per cent. As Mint reported, in this financial year, the central government has also taken supply-side measures to help keep food prices under control. While the central bank remains committed to aligning inflation to the target, it is widely expected to cut policy rates in 2024.

Also Read: India inflation likely crept closer to 6% in December: Mint poll

Experts do not appear concerned about the mild spike in inflation as they note that core inflation, which excludes volatile items like food and fuel, may have moderated last month.

Sujan Hajra, Chief Economist at Anand Rathi Shares & Stock Brokers expects CPI inflation to notch up to 5.72 per cent in December 2023.

"This will be the third consecutive month where food inflation has accelerated primarily driven by pulses, tomatoes, and onions," Hajra said.

Although topline inflation is on an upward trajectory, Hajra believes it is not a cause of concern for two reasons: first, core inflation is expected to keep decreasing, showing that the fluctuation in food inflation is not widespread; and second, the RBI had already factored in the uptick in inflation during its December 2023 policy meeting, aligning with the current developments.

Global financial firm Barclays estimates that CPI inflation rose modestly in December to 5.6 per cent year-on-year (YoY), driven higher mostly by unfavourable base effects.

Barclays expects core inflation to continue its moderating trend, slowing to 3.99 per cent year-on-year in December from 4.05 per cent in November.

Also Read: CPI preview: Inflation turning benign, core inflation could fall below 4%, says Barclays

On the other hand, Teresa John, Deputy Head of Research and Economist at Nirmal Bang expects CPI inflation to remain steady at 5.55 per cent in December, unchanged from November.

According to John, the sequential rise in prices in categories such as cereals and pulses was modest or flat while oil and fats inflation continued to decline month-on-month.

"Core CPI is likely to sustain its moderating trend and is seen at 4 per cent in December," said John.

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