Retail inflation likely to be 4.5% in FY25: CRISIL

Inflation in FY25: Retail inflation is projected to moderate to 4.5 per cent in the next fiscal year, with expectations of further decline assuming a normal southwest monsoon and robust agricultural output. The trajectory of inflation has been influenced by food prices, despite an overall softening in non-food CPI, rating agency CRISIL said on Wednesday. Unpredictable weather shocks, such as heatwaves and uneven monsoons, have impacted food prices, with vegetable prices experiencing fluctuations due to climate disruptions. Government intervention to increase food supplies has partially mitigated adverse impacts.

Food Inflation
Food inflation, constituting 39 per cent of the CPI basket, plays a significant role in headline inflation fluctuations. Weather disruptions pose a major risk to the inflation outlook, and government measures to bolster food supplies remain crucial. 
Frequent weather disruptions, such as heatwaves and unseasonal rains, have led to vegetable price shocks. Climate-related challenges persist in foodgrains (cereals and pulses) production, contributing to persistent inflation. 
According to CRISIL, despite government interventions like export bans and stock releases, weak kharif output and climate risks may sustain foodgrain inflation. Elevated food inflation disproportionately affects the poor due to a higher share of food in their consumption basket.

Non-Food Inflation
Non-food inflation has seen a downward trend, influenced by factors like easing input costs and government support. The expectation for the next fiscal year is that non-food inflation will have limited upside, attributed to stable crude and commodity prices. Brent crude oil is projected to remain within the $80-85 per barrel range, while non-fuel commodity prices are expected to soften compared to the previous year. However, geopolitical conflicts or disruptions in the Red Sea trade route could elevate global commodity prices, impacting retail prices.

The Reserve Bank of India's (RBI) 250 basis points policy rate hikes are anticipated to moderate domestic demand, contributing to the check on core inflation. Core inflation, usually sticky, is expected to remain within a range unless significant shocks occur. Overall, the outlook hinges on factors like weather patterns, geopolitical events, and the effectiveness of government interventions in managing inflationary pressures.