Worst of inflation may be over, economists see prices rising less than 5% in April

CPI inflation is seen averaging 5.2 percent in 2023-24, down from 6.7 percent in 2022-23.

The worst of inflation may be well behind India if one goes by economists' estimates. A favourable base effect sharply pulled down Consumer Price Index (CPI) inflation to 5.66 percent in March. An even greater base effect will be at play in April and the inflation print may read a full percentage point lower.

"Based on daily price data (April 1-17), our provisional estimates suggest April CPI inflation is tracking below 5 percent at 4.5-4.7 percent," Nomura economists Sonal Varma and Aurodeep Nandi said in a report on April 18.

Varma and Nandi see a strongly favourable base effect lowering inflation by about 70 basis points (bps) in April, with cooling price momentum providing further impetus to the inflation fall.

One basis point is one-hundredth of a percentage point.

"Daily food price data so far suggest a deeper fall in the prices of cereals, vegetable oils, eggs and milk, though tea, pulses and fruit prices should rise. Within the fuel basket, lower kerosene prices are likely to ease overall price pressure," Varma and Nandi added.

Nomura is not alone in expecting sub-5 percent CPI inflation in April, data for which will be released on May 12. Barclays and IDFC First Bank both expect inflation to print under 5 percent.

The last time CPI inflation was below 5 percent was 4.91 percent in November 2021.

"The preliminary estimate for April CPI inflation is tracking at 4.6 percent," Gaura Sen Gupta, India economist for IDFC First Bank, said in a note on April 12.

Risks remain, especially from the monsoon. While the India Meteorological Department has predicted a normal monsoon at 96 percent of the Long Period Average (LPA), private forecaster Skymet expects it to be "below normal" at 94 percent of the LPA.

"We see downside risk to our 2023-24 CPI inflation estimate of 5.5 percent but retain it for now, given the uncertainty on the food inflation outlook," Sen Gupta added.

The RBI's latest forecast pegs average CPI inflation at 5.2 percent in 2023-24, with the quarterly forecasts ranging from 5.1 percent to 5.4 percent.

Sen Gupta's full-year forecast is 20 basis points higher than the RBI's. Similarly, a panel of professional forecasters surveyed by the RBI sees CPI inflation at 5.3 percent in 2023-24.

Even at 5.3 percent, the worst of inflation may well be truly behind India, considering it averaged 6.7 percent in 2022-23. Lower inflation will allow the Monetary Policy Committee to stay put on rates for a prolonged period, as markets expect - and perhaps even start cutting the interest rate later this year to support growth.