India’s inflation dipped to 4.31 percent for the first time in five months in January compared with 5.22 percent in the previous month, as food inflation eased further in the month, according to data released by the government on February 12.
The decline in inflation comes just a week after the Reserve Bank of India’s Monetary Policy Committee delivered the first rate cut in five years and sets the tone for future cuts if prices stay around the 4 percent target.
"Overall, we expect the inflation trajectory to remain benign in the months ahead to provide room for another 25bp of rate cut by the MPC. However, the pace of INR depreciation will need to be closely watched for spill overs on domestic inflation," said Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank.
Economists note that tepid growth may also provide room for a rate cut.
"Looking ahead, ICRA believes that the growth-inflation outlook suggests that there is room for another 25 bps rate cut in either the April or the June 2025 meetings. The exact timing of the same would depend on the incoming data, global developments, and the movements in the USD/INR pair," said Aditi Nayar, chief economist, Icra.
The policy rate now stands at 6.25 percent compared with 6.5 percent earlier.
Food dips, core holds
Food inflation declined to 6 percent in January, dipping below the 8 percent mark for the first time in four months, as cereals, vegetables and pulses continued their downward march.
Cereal inflation eased to 6.24 percent in January compared with 6.5 percent in the previous month, while vegetables inflation witnessed a drastic decline to 11.4 percent from 26.6 percent.
Pulses and products inflation was lower at 2.59 percent from 3.83 percent compared with the previous month.
Eggs inflation was at a 27 month low. However, oil and fruits inflation rose to double digits.
Fruits inflation was at a near five year high of 12.2 percent, while oil inflation was at a near three year high at 15.6 percent.
Inflation in miscellaneous products, which constitutes a high proportion of core inflation, rose to 4.35 percent from 4.19 percent in the previous month.
Lower ahead
Inflation is likely to settle at lower levels in the coming months, with RBI projecting 4.4 percent average in the fourth quarter, staying at 4.5 percent in Q1FY25, but further easing to 4 percent in Q2 and 3.8 percent in the third quarter.
"Sustained decline in cereals inflation is expected to give relief both to the consumers as well as the government. The decline in vegetables inflation is expected to continue in the next couple of months leading to inflation in February and March 2025 to be in the 3.9%-4.0% range," said Paras Jasrai, senior analyst, India Ratings and Research.
An earlier analysis by Moneycontrol found that inflation has rarely stayed around the RBI’s target range of 4 percent.
Of the 102 months since MPC was announced in July 2016, inflation has been around 4 percent target (0.3 percent above or below) only 13 times and never for more than two months in a go.
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