Core Inflation Dips to 5.22 Percent in Dec Amid Falling Food Prices

 New Delhi: Bringing the Reserve Bank of India’s (RBI’s) tolerance band back to the limit of 2- 6 per cent, India’s headline retail inflation rate, measured by the consumer price index or CPI, for December stood at 5.22 per cent, dipping marginally from 5.48 per cent in November, while the November’s CPI also fell from a 14-month high of 6.21 per cent in October, the government data showed on Monday.

However, the government attributed that India’s core inflation fell to a four-month low of 5.22 percent in December as food prices provided some reprieve in the system, while in December, the figure, however, marks the fourth consecutive month of over 5 percent inflation in the country.

As the central bank is tracking the core inflation trend in India, the monetary policy committee is expected to take a call on rates in February after the Budget. Experts have been predicting possibly a rate cut in the month of February to bring down the cost of capital and spur the economy as well.

According to CPI data released by the National Statistics Office (NSO), the inflation in the food basket reduced to 8.39 per cent in December. “It was 9.04 per cent in November and 9.53 per cent in December 2023. The CPI (general) and food inflation in December 2024 is the lowest in the last four months,” the NSO said.

However, the NSO data showed that the vegetable prices rose 26.56 per cent year-on-year in December as compared to a 29.33 per cent increase registered in November and 42.18 per cent in October. “Prices of cereals rose 6.5 per cent from a 6.88 percent increase last month, while those of pulses jumped 3.83 per cent compared to a 5.41 per cent growth in the same period,” it showed.

Last month, the RBI had raised the inflation projection for the current fiscal year to 4.8 per cent from 4.5 per cent. The central bank also had said the lingering food price pressures seemed likely to keep headline inflation elevated in the December quarter.

Economists and analysts are of view that core inflation, which excludes volatile items such as food and energy prices and is seen as a better gauge of domestic demand, was 3.6 per cent in December compared to between 3.64 per cent and 3.7 per cent in November.

“While the CPI inflation declined to 5.2 per cent in December 2024 from 5.5 per cent in November 2024, the pace of the correction was narrower than expected. In sequential terms, the dip was driven by food and beverages, even as the Y-o-Y inflation for fuel and light, and pan, tobacco and intoxicants recorded mild up-ticks,” said Aditi Nayar, chief economist and head – Research & Outreach at Icra Ltd.

“The sharp sequential fall in vegetable prices in January 2025 is likely to augur well for the food and beverages inflation print for the month, which is expected to ease to a five-month low of 6.0-6.5 per cent in the month from 7.7 per cent in December 2024. Consequently, the Icra estimates the headline CPI inflation to soften to 4.5-4.7 per cent in January 2025 from 5.2 per cent in December 2024,” added Nayar.