November retail inflation eases, boosts rate-cut expectations in February

Separately released data by the NSO showed India’s factory output, as measured by the Index of Industrial Production (IIP), rose to a three-month high of 3.5 per cent in October from 3.1 per cent in September, despite an unfavourable base of 11.9 per cent growth in October 2023, mainly due to a pickup in manufacturing, mining and electricity sectors.

With the November print, the headline retail inflation rate, based on Consumer Price Index (Combined), has slipped below the upper limit of the 4+/- 2 per cent band of Reserve Bank of India (RBI) medium-term inflation target after topping 6 per cent in the previous month, but remained above the baseline level of 4 per cent for the third consecutive month.

With this moderation in inflation, experts said the new RBI Governor Sanjay Malhotra, who took charge on Wednesday, will have more headroom to undertake a rate cut in the next monetary policy meeting in February amid concerns over slowing growth.

“Expected moderation in inflation in coming months, will allow the MPC to consider a policy rate cut amid slowing growth. We anticipate that headline inflation will fall below 5 per cent by Q4 FY25, driven by a moderation in food inflation. This would create an opportunity for the MPC to consider a 25-bp (basis point) reduction in policy rates in the February meeting. In total we expect 50-75 bp rate cut in 2025,” said Rajani Sinha, chief economist, CareEdge Ratings.

Food and beverages segment, which accounts for 45.86 per cent of the total weight of CPI (Combined), registered an inflation rate of 8.20 per cent in November, down from 9.69 per cent in October. Inflation rate for perishables such as vegetables moderated to 29.33 per cent in November from a 57-month high of 42.18 per cent in October, while that for fruits eased to 7.68 per cent from 8.43 per cent in the previous month.

Inflation rates also inched lower for cereals to 6.88 per cent in November from 6.94 per cent in October, while for pulses, it eased to 5.41 per cent from 7.43 per cent. There was a surge in the inflation rate for oils and fats to a double-digit level of 13.28 per cent in November from 9.51 per cent in October. Inflation rate for housing inched up marginally to 2.87 per cent in November from 2.81 per cent in October.

Services inflation, as captured by the miscellaneous category, also eased a bit to 4.26 per cent in November from 4.32 per cent in October, with the personal care and effects segment inflation rate continuing to be in double digits at 10.42 per cent. Core inflation — non-food, non-fuel segment — stayed almost flat at 3.6 per cent in November from 3.7 per cent in October.

Going ahead, a higher base effect will help to lower the inflation rate, experts said, adding that the progress of rabi sowing would be critical for inflation. Also, the trend for edible oil inflation would be closely watched amid high global prices and the recent hike in import duty.

“A higher base effect of pulses, fruits, vegetables, and spices inflation will be helpful in further decline in inflation in December 2024, which we expect to be around 5 per cent. However, edible oils and personal care & effects may pose some challenges,” said Paras Jasrai, senior economic analyst, India Ratings & Research.

Region-wise split for inflation data showed that rural inflation eased to 5.95 per cent in November from 6.68 per cent in October, while urban inflation moderated to 4.83 per cent from 5.62 per cent. On the food-inflation front, rural areas recorded a food inflation rate of 9.10 per cent in November as against 10.69 per cent in October, while urban areas recorded a food inflation rate of 8.74 per cent compared with 11.09 per cent in the previous month.

Among states, seven of the 22 major states/Union Territories registered inflation over the headline rate of 5.48 per cent, with Chhattisgarh having the highest inflation rate of 8.39 per cent, followed by Bihar (7.55 per cent) and Odisha (6.78 per cent). Delhi recorded the lowest inflation rate of 2.65 per cent.

“State-level inflation is mixed with the range varying from 7.6 per cent in Bihar to 2.7 per cent in Delhi. These states were affected by higher food prices. Odisha, Madhya Pradesh, Kerala, and Bihar were other states with high inflation of above 6 per cent,” said Madan Sabnavis, chief economist, Bank of Baroda.

Meanwhile, India’s factory output picked up pace in October to 3.5 per cent from 3.1 per cent in the previous month. Cumulatively, so far in the financial year 2024-25, industrial growth has been recorded at 4.0 per cent during April-October as against 7.0 per cent in the year-ago period.

Manufacturing, which accounts for 77.6 per cent of the weight of the IIP, grew by 4.1 per cent in October as against 3.9 per cent in September and 10.6 per cent in the year-ago period. Mining output also picked pace to 0.9 per cent in October from 0.2 per cent in September but was lower than 13.1 per cent growth in the year-ago period. Electricity output also grew 2 per cent in October as against 0.5 per cent in September, but lower than 20.4 per cent in the year-ago period.

On the basis of use-base classification, the primary goods output grew by 2.6 per cent in October as against 1.8 per cent in September, while capital goods segment, a key indicator of the investment sentiment, inched lower to 3.1 per cent in October from 3.6 per cent in September and 21.7 per cent in the year-ago period.

On the consumption-goods side, both consumer durables and non-durables, output showed firm growth despite high base. Consumer durables output — an indicator of consumption demand — grew 5.9 per cent in October as against 6.5 per cent in September and 15.9 per cent in the year-ago period.

Consumer non-durable goods output, which reflects fast-moving consumer goods, grew by 2.7 per cent in October, up from 2.2 per cent in September. It had posted a growth of 9.3 per cent in the year-ago period.

“The improvement in growth of consumer-goods output (boosted by festive demand) despite high inflation in October 2024 (6.2 per cent) is quite encouraging and a positive sign for consumption demand in the economy. The improved real rural wages, which we have been highlighting for quite some time, is gradually helping in lifting consumption demand. The favourable rabi sowing prospects would provide succour to consumption demand to be steady in 2HFY25 as well,” Jasrai said.