January inflation could be lowest since October 2019

India’s retail inflation fell marginally in January but was within the Reserve Bank of India’s target range for a second month as vegetable prices declined further, a Reuters poll predicted.

The 5th to 9th February poll of 50 economists displayed that retail inflation declined to 4.45% in January in comparison to 4.59% in December.


If this validated, inflation would be its lowest since October 2019 and within the RBI’s target zone of 2%-6%. It stayed extremely high throughout last year during the COVID-19 pandemic and burst out of the range for eight continuous months from April.

“Inflation was expected to ease in January led by correction in vegetable prices,” said Sakshi Gupta, senior economist at HDFC Bank. “However, the moderation is capped as cereals and pulses prices rose in the month. Moreover, there is likely to be some upward pressure due to rising crude oil prices.”

The RBI expected inflation to remain within the range over the next few quarters but conveyed concern over high core inflation and rising fuel prices at its meeting last week.

In addition to this, a private survey observed cost prices rose across the manufacturing and services sectors, indicating inflation could move higher.

Radhika Rao, economist at DBS Bank in Singapore, said, “Undercurrents from higher input costs, commodity pass-through, demand impulses from a cyclical recovery and monsoon will influence the price trajectory.” She added, “While the door for further rate cuts has been effectively closed, this year’s balancing act will be to continue with a calibrated approach to liquidity normalization as growth gains traction.”

The RBI predicted retail inflation to be between 5.0%-5.2% in the upcoming six months from April. The Monetary Policy Committee forcasted 10.5% GDP growth in FY22, higher than the 9.5% expected in a Reuters survey a fortnight ago.

That implies that the central bank would remain accommodative, hosting the government’s 12 trillion Indian rupees ($165.4 billion) borrowing program for next fiscal year.

The economy shattered by the pandemic induced-lockdown was anticipated to acquire a crucial boost from the fiscal package and grow robustly next fiscal year, another Reuters poll found.

Asia’s third-largest economy was expected to contract 8.0% this fiscal year, its steepest fall in almost four decades.

The latest poll predicted industrial output declined 0.2% during December from a year earlier after all core industries shrank except coal and electricity. In November, it declined 1.9%. Infrastructure output, which holds approximately 40% of total industrial production, shrunk 1.3% in December.