India's retail inflation eases to 3-month low of 5.1% in January 2024

Retail inflation in India eased to 5.1% in January 2024 on an annual basis, data released by the Ministry of Statistics & Programme Implementation showed on Monday (February 12).

In August 2023, inflation touched a high of 6.83%. According to the data released by the National Statistical Office (NSO), retail inflation in the food basket was at 8.3% in January 2024, down from 9.53% in the preceding month.

Aditi Nayar, Chief Economist, Head Research and Outreach, ICRA Ltd, said, "We project the CPI inflation to ease below 5% in February-March 2024, and average at 5.3% in FY2024. Thereafter, we estimate the CPI inflation at 4.6% in FY2025, broadly in line with that of the MPC, based on the assumption of a normal monsoon.

The MPC’s expectations around the growth outlook and its forecast that the CPI inflation will moderate while remaining above the 4% target, reinforces our view of a likely shallow rate cut cycle. We foresee cumulative rate cuts of 50-75 bps, commencing in the August 2024 meeting, and a stance change in the preceding review, after there is some visibility on the monsoon turnout."

Akhil Mittal, Senior Fund Manager-Fixed Income at Tata Mutual Fund, said, "With RBI stating the risk of food inflation translating into generalised inflation, we expect RBI to continue a cautious stance. However, softening of core inflation should provide confidence to the trajectory of inflation moving as expected.

We think RBI would rather continue with stability priority and continue to maintain the 4% inflation target as sacrosanct, and hence we do not see a premature easing from RBI. We think RBI would rather ease/indicate easing only when they are sure of achieving inflation target durably (we believe the second half of FY25 could open space for easing)."

The Reserve Bank of India (RBI) has been tasked by the government to ensure retail inflation remains at 4% with a margin of 2% on either side.

The price data was collected from selected 1,114 urban markets and 1,181 villages, covering all states/UTs through personal visits by field staff of the Field Operations Division of NSO, MoSPI, on a weekly roster.

During January 2024, the NSO collected prices from 99.8% villages and 98.5% urban markets. The market-wise prices reported therein were 89.9% for rural and 93.6% for urban.