Inflation likely fell to five-month low in March, but concerns linger: Report

March Inflation outcome: Retail inflation as measured by the consumer price index (CPI) is expected to have moderated to a five-month low of 4.91 per cent in March, according to a recent poll Reuters. However, despite this slight easing, inflation remained above the Reserve Bank of India's medium-term target of 4 per cent, primarily due to persistent food price rises.

RBI Governor Shaktikanta Das highlighted concerns regarding food price volatility, stressing that such fluctuations continue to pose challenges. The consistent escalation in food prices has surpassed headline inflation for several months, significantly impacting millions of vulnerable households reliant on government food subsidies.

The poll, conducted between April 4-8 and comprising insights from 50 economists, forecasts a decrease in consumer price inflation from February's 5.09 per cent to 4.91 per cent in March. Analysts attribute this disinflation to a reduction in momentum across food, fuel, and core items, although some base effects have also played a role.

Expectations suggest that inflation may return to the RBI's target in the next quarter but could surpass it in subsequent quarters. However, the onset of a heat wave poses a potential risk to the inflation downtrend in the upcoming months.

Radhika Rao, senior economist at DBS Bank, identified potential supply-side shocks as the primary risk factor. Despite robust economic growth, which surpassed expectations at 8.4 per cent in the October-December quarter, Rao noted that the need for additional support from monetary policy levers is currently limited.

India's economy is projected to grow by 7.6 per cent over the 2023-24 fiscal year, outperforming its major peers. Nevertheless, market consensus suggests that the RBI's next move will likely be a cut to its key policy rate in the next quarter.

Regarding core inflation, which excludes volatile food and energy prices, analysts anticipate it to stand at 3.27 per cent in March. However, official core inflation figures are not publicly disclosed, adding another layer of complexity to the inflation outlook.

(With Reuters inputs)