India's retail inflation eases to a 10-month low of 4.85% in March

According to the central bank's latest forecast, CPI inflation is seen at 4.5 percent for the current financial year.

India's headline retail inflation rate eased to a ten-month low of 4.85 percent in the previous month, according to data released by the Ministry of Statistics and Programme Implementation on April 12.

The Consumer Price Index (CPI) inflation print in February was 5.09 percent.

At 4.85 percent, the latest headline retail inflation figure is the lowest since May 2023 when it came in at 4.31 percent. The March figure was also slightly lower than expectations, with economists having predicted prices likely to have eased to 4.91 percent compared to a month ago, according to a Reuters survey.

The latest inflation data comes a week after the RBI's Monetary Policy Committee (MPC) on April 5 announced the decision to keep the policy repo rate unchanged at 6.5 percent for the seventh consecutive time.

According to the central bank's latest forecast, CPI inflation is seen at 4.5 percent for the current financial year.

While CPI inflation has extended its stay inside the Reserve Bank of India's (RBI) tolerance range of 2 percent to 6 percent to a seventh consecutive month, it has now spent 54 months in a row above the medium-term target of 4 percent.

March CPI internals
Food inflation softened marginally with the index coming in at 8.52 percent, as compared to 8.66 percent in previous month.

On the up were prices of cereals at 8.37 percent versus 7.60 percent a month ago, and meat and fish at 6.36 percent compared to 5.21 percent in February. Meanwhile, vegetables and pulses exhibited a marginal declining trend.

In total, the food and beverages inflation stood at 7.68 percent in March, lower than 7.76 percent in February.

ICRA estimates the food and beverages inflation to remain above the 7.0 percent mark in April 2024. "An intensification of the impending heatwave may worsen the seasonal uptick in prices of perishables, heightening the criticality of a favourable monsoon in 2024 to keep food inflation in check and inflationary expectations well-anchored," according to Aditi Nayar, Chief Economist, ICRA Ltd.

Beyond food, fuel and light inflation fell further from -0.77 percent in February to -3.24 in March, while housing inflation dropped to 2.77 percent from 2.88 percent sequentially.

Core inflation, which excludes volatile components such as food and fuel, remained steady at 3.5 percent, as per ICRA's Nayar.

Nayar adds that the ongoing uptrend in international crude oil prices could also pose a risk to the CPI inflation outlook in the near term, although the extent of the impact would depend on the pass-through to retail fuel prices.