December saw a likely increase in retail inflation in India, also known as consumer pricing index (CPI)-based inflation, for the second consecutive month. Unfavorable base effects and rising prices for onions, tomatoes, and pulses were the main causes of this increase. The Reserve Bank of India (RBI) is unlikely to adjust its monetary policy in response to this, though, as core inflation is declining and the rise in food inflation was widely expected.
A Mint survey of 19 analysts predicted that in December 2023, retail inflation in India would probably increase for a second consecutive month to 5.9%.
Six economists predicted inflation to be at or above 6.4%, the top tolerance limit of the RBI’s inflation-targeting mandate, according to Mint. Predictions in the poll ranged from 5.5% to 6.4%.
In October, India’s CPI-based inflation rate was 4.87 percent. But in November, it bounced back to reach a three-month high of 5.5%.
The deadline for the December CPI print is Friday, January 12.
Aditi Nayar, Chief Economist at ICRA, predicts that the average rate of inflation would drop to 5% in the quarter ending in March due to the turnaround in vegetable prices and a stable base going forward.
This quarter, the RBI anticipates average inflation of 5.2%. According to Mint, the central government has implemented supply-side policies to help regulate food costs throughout this fiscal year. The central bank is projected to lower policy rates in 2024, even though it is still committed to bringing inflation into line with the target.
Given that core inflation, which does not include volatile goods like food and gasoline, may have decreased last month, experts do not seem to be concerned about the little increase in inflation.
Anand Rathi Shares & Stock Brokers Chief Economist Sujan Hajra projects CPI inflation to reach 5.72% in December 2023.
“This will be the third consecutive month where food inflation has accelerated primarily driven by pulses, tomatoes, and onions,” Hajra stated.
Even though topline inflation is rising, Hajra does not think this is a reason for alarm for two reasons: first, core inflation is anticipated to continue falling, indicating that food inflation fluctuations are not common; and second, the RBI had already taken the rise in inflation into account at its December 2023 policy meeting, in line with the current circumstances.
According to estimates from global financial institution Barclays, unfavorable base effects were primarily responsible for the minor increase in CPI inflation in December, which increased to 5.6% YoY.
According to Barclays, core inflation will continue to moderate, falling from 4.05 percent in November to 3.99 percent in December on an annual basis.
Teresa John, Deputy Head of Research and Economist at Nirmal Bang, on the other hand, anticipates that CPI inflation will be constant in December at 5.55 percent, as it was in November.
John claims that while the inflation of oils and fats were going down month over month, the sequential price increases in categories like cereals and pulses were either minimal or nonexistent.
“Core CPI is likely to sustain its moderating trend and is seen at 4 per cent in December,” John stated.
