Wholesale price-based inflation declined to a three-month low of 1.89 percent in November due to cheaper food items, with experts predicting a 0.25 percent interest rate cut by the Reserve Bank of India (RBI) in the policy review in February.
The Wholesale Price Index (WPI)-based inflation was 2.36 percent in October 2024. It stood at 0.39 percent in November last year. In August 2024, it was 1.25 percent.
According to the data, inflation in food items eased to 8.63 percent in November, compared to 13.54 percent in October. The decline was driven by a drop in vegetable inflation, which stood at 28.57 per cent in November, down from 63.04 per cent in October.
However, inflation in potatoes remained high at 82.79 per cent, while inflation in onions fell sharply to 2.85 per cent in November.
The fuel and power category witnessed a deflation of 5.83 percent in November, compared to a deflation of 5.79 percent in October. Inflation in manufactured items rose to 2 percent in November, up from 1.50 percent in October.
In a research note, Barclays stated that wholesale price inflation softened in November due to lower primary food inflation, which offset the higher inflation observed in manufactured products.
"December to date, global prices are up 0.7 percent and are likely to push December WPI inflation higher," Barclays noted.
As per consumer price index (CPI) data released last week, retail inflation moderated to 5.5 percent in November, compared to 6.2 percent in October.
Barclays stated this is within the Monetary Policy Committee’s (MPC) tolerance band of 2-6 percent, indicating that CPI inflation is likely to drift closer to the 4 percent target by March 2025.
"We expect the MPC to cut the policy repo rate by 25 basis points in its February meeting. We are mindful of the almost new-looking MPC that will be in charge of this decision," Barclays said.
The government appointed a new RBI governor earlier this month. Former Revenue Secretary Sanjay Malhotra took over as the 26th RBI Governor on 11 December, replacing Shaktikanta Das.
In October, the government had reconstituted the six-member MPC.
ICRA Ltd Senior Economist Rahul Agrawal said the moderation in WPI inflation was primarily driven by primary food articles, which eased to a three-month low of 8.6 percent from 13.5 percent in the previous month, exerting downward pressure on the headline figure by 91 basis points between these months.
ICRA expects headline WPI inflation to rise to 2.5-3 percent in December 2024 (compared to +0.9 percent in December 2023) despite a favourable base effect.
A majority of food items, for which data is released by the Department of Consumer Affairs, have seen an increase in their year-on-year inflation rates in December 2024 (up to 15 December 2024) compared to November 2024.
Additionally, the year-on-year deflation in global commodity and crude oil prices has also narrowed between these months, while the USD/INR exchange rate has depreciated slightly, exerting upward pressure on the landed cost of imports.
Looking beyond the current month, the arrival of kharif crops in the market and the robust outlook for the rabi crop, supported by healthy sowing trends and elevated reservoir levels, bode well for the food inflation outlook, Agrawal said.
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