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Retail inflation continued with its softening trend for the second month in a row in December, easing to a four-month low of 5.22 per cent from 5.48 per cent in the previous month, as prices of food items, including pulses and vegetables, continued to moderate, data released by National Statistics Office (NSO) on Monday showed. Food inflation, based on the Consumer Food Price Index (CFPI), eased to a four-month low of 8.39 per cent in December from 9.04 per cent in the previous month, the data showed.
The headline retail inflation rate in December, based on Consumer Price Index (Combined), has slipped below the upper limit of the 4+/- 2 per cent band of Reserve Bank of India’s (RBI) medium-term inflation target for the second consecutive month after topping 6 per cent in October, but remained above the baseline level of 4 per cent for the fourth consecutive month.
With this moderation in inflation, experts said the new RBI Governor Sanjay Malhotra may maintain a pause in the upcoming February monetary policy meeting.
“The RBI could remain cautious in preemptively cutting interest rates and the possibility of a pause in the February 2025 policy is high. Our base has been for the rate cut cycle to begin by the April policy and our view remains unchanged. While inflation is expected to start showing signs of further moderation due to seasonal factors, the RBI could prefer a more cautious approach given global uncertainties and emphasising the importance of the “timing” of the rate cut. With rising expectation of a pause by the US Fed in the January policy and increasing depreciation pressures on the rupee, the RBI could be nudged towards delaying the start of its rate cut cycle,” HDFC Bank’s Principal Economist Sakshi Gupta and Senior Economist Mayank Kumar Jha said in a note.
Food and beverages segment, which accounts for 45.86 per cent of the total weight of CPI (Combined), registered an inflation rate of 7.69 per cent in December, down from 8.20 per cent in November. Inflation rate for perishables such as vegetables moderated to 26.56 per cent in December from 29.33 per cent in November.
Inflation rates also inched lower for cereals to 6.51 per cent in December from 6.88 per cent in November, while for pulses, it eased to 3.83 per cent from 5.41 per cent. Inflation rate for milk and products inched slightly lower to 2.80 per cent in December from 2.85 per cent in the previous month, the data showed.
However, the inflation rate for oils and fats increased to a 33-month high of 14.6 per cent in December, while that for fruits increased 8.49 per cent from 7.68 per cent.
Economists said despite the softening, food inflation remains elevated. “So far this fiscal, food inflation has averaged 8.4 per cent, higher than 7.5 per cent for the whole of fiscal 2024. Elevated food inflation has been the major hurdle for rate cuts as it keeps the headline inflation high and household inflation expectations elevated,” Dipti Deshpande, principal economist, Crisil said.
Inflation rate for housing inched down to 2.71 per cent in December from 2.87 per cent in November, while that for clothing and footwear eased marginally to 2.74 per cent from 2.75 per cent a month ago.
Services inflation, as captured by the miscellaneous category also eased a bit to 4.19 per cent in December from 4.26 per cent. Core inflation — non-food, non-fuel segment — eased to a three-month low of 3.6 per cent in December, indicating subdued demand conditions.
Going ahead, better rabi sowing prospects will help to lower the inflation rate, experts said.
“The ongoing rabi sowing has been progressing well which should help the food inflation cool off further…while the current data is positive from the monetary policy perspective, Ind-Ra believes that the monetary authority would want to wait for one more policy before undertaking any change on the rates front,” Paras Jasrai, senior economic analyst, India Ratings & Research said.
