Economy
India inflation likely crept closer to 6% in December: Mint poll
Summary
- If the poll prediction is correct, inflation will have risen for the second month in a row, exceeding the RBI's medium-term target of 4% all across the October-December quarter
India’s retail inflation likely rose for the second straight month to 5.9% in December 2023 mainly on account of an unfavourable base effect, according to the median estimate given by 19 economists in a Mint poll. The uptick, which comes after a 5.55% print in November, could support the Reserve Bank of India’s (RBI’s) decision to hold the repo rate steady at 6.5% for the fifth time a row last month.
The predictions in the poll ranged between 5.5% and 6.4%, with six economists expecting inflation to be at or above 6%, the upper tolerance limit of the RBI’s inflation targeting mandate.
The official data will be released on 12 January.
“The expected pickup in inflation is mainly on account of higher vegetable inflation compared to the same month previous year, even as prices have started to soften sequentially," said Abhishek Upadhyay, senior economist at ICICI Securities Primary Dealership.
In December 2022, the vegetable index had declined 12.7% sequentially, while the prices in December 2023 are expected to have remained sharply higher despite the moderation from November.
Food items, which account for nearly 40% of the inflation basket, had seen their inflation ease in the three months prior to November. However, it increased in November due to a sharp rise in vegetable prices. The central bank, too, in its latest policy meeting, warned of a pick-up in headline inflation in November-December due to uncertainties in food prices.
If the poll prediction proves correct, inflation would have averaged 5.4% in the third quarter of fiscal year 2023-24, which is still lower than the RBI’s projection of 5.6%. Despite the pick-up in the year-on-year inflation rate in December, a few economists said that the rise in prices will be less pronounced compared with the last month.
A reversal in vegetable prices as well as a supportive base going forward is expected to cool the inflation prints to an average of 5% in the March-ending quarter, said Aditi Nayar, chief economist at ICRA Ltd. The RBI sees average inflation in this quarter at 5.2%. In this financial year, the central government has also taken supply-side measures to help keep food prices under control. While the central bank remains committed to aligning inflation to the target, it is widely expected to cut policy rates in 2024.
While headline inflation increased in November and December, core inflation, which excludes volatile items like food and fuel, is expected to have remained moderate last month.
