India’s headline retail inflation witnessed a decline, reaching a three-month low of 5.10 percent in January, primarily attributed to a decrease in food prices, as reported by the Ministry of Statistics and Programme Implementation on February 12. In comparison, the Consumer Price Index (CPI) inflation in December 2023 stood at 5.69 percent. This latest CPI figure aligns with expectations, with economists forecasting a year-on-year price increase of 5.09 percent in January 2024. Despite the decline in January, retail inflation has maintained a 52-month streak above the Reserve Bank of India’s (RBI) medium-term target of 4 percent.
However, it has consistently stayed within the tolerance range of 2 to 6 percent for the fifth consecutive month. The decrease in January’s inflation is attributed to a weakened price momentum in food items, particularly reflected in a month-on-month change of -0.7 percent in the Consumer Food Price Index since December 2023. Notably, vegetable prices declined by 4.2 percent MoM, while fruit prices dropped by 2.0 percent. Although items like eggs and cereals saw marginal increases, overall food inflation decreased to 8.30 percent from 9.53 percent in December 2023.
Analysts point to factors like delayed sowing, irregular monsoons, and a recent truckers’ strike affecting the supply chain. Beyond food, the month-on-month price rise was modest in housing, fuel and light, clothing and footwear, and miscellaneous categories, ranging from 0.2-0.4 percent. Consequently, core inflation (excluding food and fuel) dipped to 3.6 percent from 3.9 percent in December 2023. The latest inflation data follows the RBI’s recent decision to keep the policy repo rate unchanged at 6.5 percent. The central bank projects CPI inflation at 5.0 percent in the current quarter, easing to 4.0 percent in July-September, but rising to 4.7 percent in the first quarter of 2025. Analysts anticipate a cautious stance from the RBI, emphasizing the importance of achieving the inflation target durably and suggesting potential easing in the second half of 2024-25.
