January inflation likely at three-month low of 5%: Mint poll

While this moderation may provide some relief to Reserve Bank of India which expressed concern in its monetary policy review on Wednesday about significant uncertainty in food prices due to “the possibility of adverse weather events" it said supply-side measures will be required to control them. Official data is scheduled to be released on 12 February.

In the poll, economists’ projections ranged from 4.7% to 5.4%. Cooling food inflation may bring relief, but prices are expected to remain at elevated levels with cereal prices showing resilience for over a year.

“We expect food prices to rise 8.1% year-on-year in January (December: 8.7%). In spite of the climbdown in inflation, at 8%-plus, it still remains elevated, though largely due to transitory factors," said Rahul Bajoria, managing director for Asia-Pacific at Barclays, in a 6 February report. On a sequential basis, food prices may have cooled marginally, with declining vegetables, pulses, spices, sugar and eggs prices offsetting the rise in prices of cereals and fruits, Bajoria added.

With food items constituting 40% of the inflation basket, it exerts a considerable influence on headline inflation.For most of 2023, core inflation, which excludes volatile segments like food, fuel and light, witnessed a downward trend. In the Monetary Policy Committee (MPC) meet, that concluded yesterday, members expressed concerns over the uncertain outlook for food prices and called for effective supply-side responses, that are usually done by the Centre, to keep them in check.

“Continuing pass-through of monetary policy actions and stance is keeping core inflation muted," it said.

The rate-setting panel retained its inflation projection for FY24 at 5.4%, expecting inflation to average 5% in Q4. Even though inflation is likely to moderate further, it will still be far from the medium-term target of 4%.

As such, most economists do not expect policy rate cuts to commence before August.