India's retail inflation dropped to a four-month low of 5.2% in December, driven by a significant decline in food prices, official data released on Monday reportedly stated. The Consumer Price Index (CPI) for December marked a decrease from 5.5% in November and 5.7% in the same month a year ago. Economists highlighted that while inflation appears to be moderating, the continued weakness of the rupee against the dollar has added a layer of uncertainty to the monetary policy outlook.
Rate Cut Prospects Dim Amid Rupee Weakness
According to information,the Indian rupee slipped below 86 per dollar on Monday, raising concerns about imported inflation, especially for oil products. "This depreciation makes a status quo on the repo rate likely, unless things change drastically on the forex front, which is improbable," Madan Sabnavis, Chief Economist at Bank of Baroda, quoted as saying.
Aditi Nayar, Chief Economist at ICRA, noted that the probability of a rate cut in February has diminished. However, she highlighted that the ongoing decline in vegetable prices could prompt some members of the Monetary Policy Committee (MPC) to consider an early rate cut to support economic growth.
Adding to the complexities, the depreciation of the rupee below 86 per dollar raises concerns about imported inflation, particularly for oil and other commodities. Rajani Sinha, Chief Economist at CareEdge Ratings, reportedly emphasized the importance of monitoring geopolitical developments closely, given their potential to disrupt global commodity markets and supply chains. These factors, combined with inflationary pressures, underscore the need for a balanced approach as policymakers navigate this challenging economic environment.
While inflation averaged 5% in 2024, lower than the 5.7% seen in 2023, it has consistently exceeded the 5% mark for the past four months. Rural inflation outpaced urban inflation in December, with rates of 5.8% and 4.6%, respectively. Core inflation, which excludes volatile food and fuel prices, dropped to 3.6%, indicating subdued demand pressures. Despite these moderating trends, food inflation remained elevated, with rural areas experiencing higher price pressures than urban counterparts.
The MPC, which has maintained the repo rate at 6.5% for 11 consecutive meetings, is set to meet from February 5-7, just days after the Union Budget presentation. "The fiscal arithmetic conviction is likely to weigh on the monetary policy action," remarked Paras Jasrai, Senior Economic Analyst at India Ratings and Research (Ind-Ra).
Inflation Trends and Rural-Urban Divide
Rural inflation in December stood at 5.8%, higher than the 4.6% recorded in urban areas. Among states and union territories, Chhattisgarh reported the highest inflation at 7.6%, followed by Bihar (7.4%) and Odisha (7%).According to information,on a quarterly basis, inflation reached a five-quarter high of 5.6% in Q3 FY24, slightly below the RBI's projection of 5.7%. The central bank forecasts inflation to ease to 4.5% in the January-March quarter.
Core inflation, which excludes volatile food and fuel prices, fell to a three-month low of 3.6% in December, indicating subdued demand pressures.
Food Inflation Trends
Food inflation dropped to 8.4% in December from 9% in November, supported by the arrival of winter crops. While rural areas experienced higher food inflation at 8.7%, urban areas saw a slightly lower rate of 7.9%. Notably, vegetable prices, although still elevated at 26.6% year-on-year, reached a four-month low in December. On average, food inflation for 2024 was higher at 8.4% compared to 6.8% in 2023.
( Business Correspondent)
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