Economy
India’s inflation likely eased to 5.3% in December: Mint poll
Summary
Economists expect inflation to continue easing in the coming months, increasing the likelihood of a rate cut in the policy repo rate as soon as February.
India’s retail inflation likely moderated to a four-month low of 5.3% in December, down from 5.5% in November, driven by the seasonal decline in food prices, according to the median estimate of 25 economists in a Mint poll. However, despite the expected easing, concerns over food price volatility will likely continue.
Economists projected December’s consumer price index (CPI) inflation between 5% and 5.5%. If the poll’s median estimate proves accurate, it would lead to an average of 5.7% in the October-December quarter, which will be in line with the Reserve Bank of India’s (RBI) latest projection for this period.
The official data is scheduled to be released on 13 January.
“We expect the CPI inflation to moderate in December on the back of some correction in food inflation. Nevertheless, food and beverages inflation is likely to remain elevated," said Aditi Nayar, chief economist at Icra Ltd.
Food inflation, which accounts for nearly 40% of the inflation basket, has remained a major contributor to headline inflation. However, some respite is expected with seasonal easing in prices due to the arrival of fresh crops in the market.
Economists expect inflation to continue easing in the coming months, increasing the likelihood of a cut in the policy repo rate as soon as February. “Overall, price trends are evolving favourably for the RBI to start cutting the policy rate. We expect a cut of 25 basis points in February, especially as high-frequency growth indicators remain lacklustre," said Dhiraj Nim, economist at ANZ Bank.
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The central bank has kept the repo rate unchanged since February 2023 even as the US Federal Reserve started easing its monetary policy.
While hopes of a rate cut are high next month, the central bank is expected to be watchful of the risks. The RBI currently sees full-year inflation at 4.8%, significantly above the medium-term target of 4.0%.
Also read: India’s central bank should lead the policy easing cycle that its economy needs
