Economy
Retail inflation likely eased to 5-month low of 4.5% in January: Mint poll
Summary
- Economists expect inflation to continue easing in the coming months on the back of easing food prices, supporting the central bank’s decision to cut the policy repo rate.
India’s retail inflation likely eased to a five-month low of 4.5% in January, according to a Mint poll of 23 economists. This will be significantly below the 5.2% print recorded in December, mainly due to the continuing softness in the price of food, particularly vegetables.
While all economists polled by Mint expected inflation to moderate in January, one projected only a minor easing to 5.1%. Barring this, the projections for inflation were in the range of 4.2-4.7%. The official data is scheduled to be released on 12 February.
“Vegetable prices eased notably in January, thanks to fresh crop arrivals. Since the usual winter correction in food prices has been a bit delayed this time, we expect food prices to continue to fall further, easing the constraint on the Reserve Bank of India," said Dhiraj Nim, economist at ANZ Research.
Food inflation had risen sharply in September and October, pushing headline inflation above the RBI’s upper tolerance limit of 6% on the back of high vegetable prices. However, with seasonal moderation in vegetable prices taking effect, inflation began easing from November onwards.
However, inflation for food, which makes up nearly 40% of the overall inflation basket, remained above the headline inflation by 337 basis points in November-December. 100 basis points are equivalent to one percentage point.
Nevertheless, easing headline inflation will offer relief to the Reserve Bank of India (RBI), which has begun easing monetary policy. Last week, in a significant policy shift, the RBI cut the policy repo rate by 25 basis points to 6.25% under newly appointed governor Sanjay Malhotra.
“Going ahead, food inflation pressures, absent any supply side shock, should see a significant softening due to good kharif production, winter-easing in vegetable prices and favourable rabi crop prospects. Core inflation is expected to rise but remain moderate," the Monetary Policy Committee said last week.
The RBI expects inflation to average 4.4% in January-March, around the same level expected in January. However, uncertainties in global financial markets, volatile fuel prices, and unpredictable weather events may add upside risks to moderating the inflation trajectory.
While the rate cut aims to boost economic activity through cheaper borrowing, the central bank maintains a ‘neutral’ stance to adjust policy according to evolving economic conditions.
Also Read: Growth, inflation, financial stability: It’s a season of major trade-offs for India’s policymakers
