India’s consumer inflation for February is expected to have fallen below the Reserve Bank of India’s (RBI) medium-term target of 4 percent for the first time in six months.
This decline is attributed to moderating food prices, which have provided relief after months of elevated costs.
The drop in inflation has also raised expectations that the central bank may consider interest rate cuts in the coming months to support economic growth.
According to a Reuters poll of 45 economists conducted between March 4 and 10, inflation is projected to have eased to 3.98 percent in February from 4.31 percent in January.
Forecasts for the upcoming inflation data, scheduled for release on March 12, ranged from 3.40 percent to 4.65 percent.
Nearly 70 percent of the economists surveyed believe that inflation will remain at or below the RBI’s target of 4 percent.
Only a few respondents predicted that inflation would exceed January’s reading.
One of the key reasons for the decline in inflation is the continued slowdown in vegetable price rises. The arrival of fresh winter produce in the markets over the past few months has helped stabilise food prices.
Food items, which account for almost half of the consumer price index (CPI) basket, had seen a sharp increase in prices last year due to supply disruptions caused by erratic monsoons and extreme heatwaves.
However, with better supplies and improved availability, food inflation has started to ease.
Gaura Sengupta, chief economist at IDFC First Bank, stated that the decline in food inflation is not just limited to vegetables but is also being observed in pulses and cereals.
She highlighted that these food items tend to have more persistent price pressures because their harvest cycles are less frequent, making the recent easing of prices a positive development.
The downward trend in inflation has led to speculation that the RBI may opt for an interest rate cut as early as April.
The central bank had previously reduced interest rates by 0.25 percent in February, and with inflation now well within the RBI’s target range of 2 to 6 percent, another rate cut could be on the horizon.
A separate Reuters poll suggested that the upcoming rate-cutting cycle is expected to be brief and limited in scope. While lower inflation provides room for monetary easing, economic analysts remain cautious about potential risks that could drive inflation back up.
One of the primary concerns is the possibility of an early onset of summer and heatwaves, which could disrupt agricultural output.
The India Meteorological Department has warned that high temperatures may arrive sooner than usual, which could lead to supply shortages and renewed price pressures on essential food items.
Rahul Bajoria, an economist at Bank of America, pointed out that the current decline in vegetable prices might not last long.
He expects that price corrections could begin reversing as early as March, particularly if adverse weather conditions impact crop production.
His team estimates that headline CPI inflation will average 4.8 percent in the current fiscal year, with a slight reduction to 4.1 percent in the next year.
He noted that inflation risks are balanced between lower global commodity prices and potential depreciation of the Indian rupee.
Core inflation, which excludes volatile food and energy prices, was estimated to have risen slightly in February.
Economists predicted that core inflation reached 3.82 percent year-on-year, up from 3.70 percent in January.
Meanwhile, inflation based on the Wholesale Price Index (WPI) was also expected to increase marginally.
The survey projected WPI inflation at 2.36 percent in February, up from 2.31 percent in January.
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