New Delhi: India's retail inflation eased to a four-month low in December, driven by a slower increase in food prices, according to provisional government data released on Monday.
Retail inflation, based on the Consumer Price Index (CPI), rose 5.22% in December, down from 5.48% in November and 5.69% a year ago, ministry of statistics & programme implementation (MoSPI) data showed.
The latest retail inflation figure was within the Reserve Bank of India's (RBI's) medium-term target of 2-6%.
Food inflation, a persistent challenge, rose 8.39% annually in December compared to 9.04% in the previous month, and 9.53% in the year-ago period.
Food inflation rose by 10.87% in October, 9.24% in September, and 5.66% in August.
A Mint poll of 25 economists had estimated retail inflation at a four-month low of 5.3% in December, driven by the seasonal decline in food prices.
The survey, however, cautioned that despite the expected easing, concerns over food price volatility will likely continue.
Suman Chowdhury, executive director & chief economist, Acuité Ratings, said on Monday, "The decline was expected, driven by the seasonal slide in vegetable prices. Our calculations show that monthly retail mandi prices for key vegetables (tomatoes, onions, potatoes) have seen a sequential decline from their peaks in September-October and averaging about 9% lower in December compared to November. However, prices of potatoes, in particular, rose by around 68% YoY, and vegetable inflation still stands at 26.6% in December despite the downslide."
"In the months ahead, food inflation is expected to continue its downward trajectory, driven by the seasonal decline in vegetable and other food prices supported by a good Rabi season. But, there is uncertainty on the extent of the decline in food inflation over the next few months," he added.
Food prices have remained elevated for over a year, staying above 7% from November 2023 to June 2024, primarily due to last year’s uneven and below-normal monsoon rains.
While overall food inflation slowed in December, the prices of meat and fish, eggs and fruit rose at a higher pace during the month, as compared to November.
During December, the inflation for food and beverages rose by 7.69%, compared to 8.20% in the previous month.
The price of clothing and footwear fell during December, as compared to the previous month.
Paras Jasrai, senior analyst at India Ratings, said, “Core inflation is expected to remain at the same level in January 2025. The segment, which gets critically impacted by the policy actions of the central bank is ‘core-core’ (excluding petrol, diesel and other related items from the core segment). In December 2024, the core-core inflation moderated to 3.8%, marginally lower than the 4% mark.”
"The growth trajectory appears to be picking up in 3QFY25 based on incoming high-frequency data which should give the MPC policy bandwidth to have the inflation move closer to the 4% mark. The ongoing rabi sowing has been progressing well which should help the food inflation cool off further," he added.
Interestingly, 13 of the 28 states reported inflation of over 5% in December.
States, which reported lower inflation than the national average during December included Andhra Pradesh, Delhi, Gujarat, Himachal Pradesh, Jharkhand, Maharashtra, Rajasthan, Telangana and West Bengal.
The Reserve Bank of India (RBI) left the benchmark repo rate unchanged at 6.5% in December, signalling that interest rate cuts may take a while.
The MPC resolved to maintain its neutral monetary policy stance, with a focus on achieving a sustainable alignment of inflation with the target (2%-6%), while continuing to support economic growth.
The central bank expects real GDP growth for FY25 to be at 6.6%, down from its earlier forecast of 7.2%, and CPI inflation to be at 4.8%, its higher than earlier forecast of 4.5% for the ongoing fiscal year largely due to a persistently high food prices and weakened consumption demand.
It last raised the repo rate to 6.5% in February 2023.
"While the projection for inflation for Q4 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 the repo rate under these conditions (unless things change drastically on the forex front, which is unlikely)," said Madan Sabnavis, chief economist at the Bank of Baroda.
"The US policy stance will be known over time and any lowering of repo rate with global rates being where they are can mean lower investment flows. This will be an additional consideration for the RBI," he added.
Regulating interest rates is a key for the central bank to control inflation.
A higher interest rate regime makes borrowing costs more expensive, reducing demand among banks, financial institutions, and the general public, which can, in turn, bring down consumer spending and inflation.
RBI’s medium-term target for CPI inflation is 4% within a band of plus or minus 2%.
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