Inflation and CPI data: The country’s headline retail inflation rate eased to a three-month low of 5.10 percent in January, and the Consumer Price Index (CPI) inflation print in December 2023 was 5.69 per cent. Economists see tamed inflation as a step in the right direction but say food inflation continues to pinch. In an exclusive interaction with Republic Business, Swati Arora, an economist of macroeconomics, public policy, and financial markets at HDFC Bank, said food inflation continues to remain a cause of concern. A month-on-month rise in cereal inflation is worrisome, Arora added.

Still above RBI projection

The headline inflation has seen a fall but remains above the Reserve Bank of India’s projection for India to achieve inflation in the range below 4 per cent, said Arora. "In an election year, any rate cut by the Reserve Bank of India (RBI) is anticipated only after August, as has been already stated by the central bank," Arora added.

“We expect the RBI to start its rate cut cycle by August 2024 and change its stance in the June policy,” Arora said, adding that the headline inflation number of 5.10 per cent was in line with market expectations. 

Double-digit growth in vegetable prices

Statistically, the fall in headline inflation is a favourable base driven, while food inflation hovering above 8.3 per cent remains a point to ponder for the policymakers, Arora said. The economist highlighted the persisting trend of vegetable prices clocking a double-digit growth.

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“The cereal inflation at 7.8 per cent YoY and the high vegetable prices have been pinching. The internals are alarming. The headline inflation which stands at 5.10 percent largely in line with market expectation,” said the economist.

Arora said the headline inflation is supported by a favorable base effect from last year. “Even core inflation, which excludes food and fuel inflation, is 3.6 per cent from 3.8 per cent is largely due to broad-based moderation in subcategories,” Arora added. Going forward inflation is expected to hover around 5 per cent in February and March, and 5.1 per cent in Q4 FY24, the economist further said.

“We expect inflation to hover around 5 per cent in February and March 2024 while core inflation is expected to stay below 4 per cent amidst a favourable base effect. We expect CPI to average at 5.1 per cent for Q4 FY24 and 5.4 per cent for FY24. For FY25, we expect CPI to average at 4.6 per cent in FY25,” the economist told Republic Business.