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India's retail inflation drops to 5.22 pc

India's retail inflation eased to 5.22% in December, marking a four-month low compared to the 5.48% registered in November. This decrease was primarily driven by a moderation in food prices, as vegetable costs, a major component of the inflation basket, began to stabilise.

News Arena Network - New Delhi - UPDATED: January 13, 2025, 05:07 PM - 2 min read

December Sees 4 months low retail inflation slowing to 5.22 % in India.


India's retail inflation eased to 5.22% in December, marking a four-month low compared to the 5.48% registered in November. This decrease was primarily driven by a moderation in food prices, as vegetable costs, a major component of the inflation basket, began to stabilise.

 

While inflation showed signs of slowing, it is not expected to return to the Reserve Bank of India's (RBI) medium-term target of 4% until at least the second half of 2026. This forecast suggests that while inflationary pressures are easing, significant reductions are unlikely in the immediate future.

 

India’s inflation rate had surged to a 14-month high of 6.2% in October, with food inflation reaching a 15-month high of 10.9%. However, in December, the situation began to improve.

 

Rural inflation fell to 5.76%, a sharp drop from the 9.10% recorded in November, while urban inflation decreased to 4.58% from 8.74% the previous month. Core inflation, which excludes volatile items such as food and energy, stood at 3.6% in December, showing a slight decrease from the 3.7% in November.

 

The easing of food inflation played a pivotal role in bringing down overall inflation. Food inflation, which constitutes around half of the Consumer Price Index (CPI) basket, dropped to 8.39% in December, down from 9.04% in November.

 

Vegetable prices, which have been a major contributor to high inflation over the past year, showed some signs of moderation, rising 26.56% year-on-year in December compared to 29.33% in November and 42.18% in October.

 

This reduction is attributed to a bumper summer crop harvest, supported by favourable monsoons, which has helped ease pressure on food prices.

 

However, certain food items, such as cereals and pulses, saw price increases. The inflation rate for cereals stood at 9.67% in December, up from 6.88% in the previous month, while pulses saw a slight decline in inflation, with a 3.83% increase compared to 5.41% in November.

 

Despite the overall moderation in food prices, the impact of high food inflation remains a significant concern for both the government and consumers.

 

The RBI's Monetary Policy Committee (MPC) has been closely monitoring inflationary trends. In December, the MPC downgraded its growth forecast for the fiscal year, lowering it to 6.6% from the earlier estimate of 7.2%.

 

At the same time, inflation estimates were revised upwards to 4.8% from 4.5%. The MPC retained its neutral stance, indicating room for potential rate cuts if inflationary pressures continue to ease in the coming months.

 

Shaktikanta Das, the former RBI Governor, noted that food inflation is expected to remain elevated through the third quarter of fiscal year 2025 before showing signs of moderation in the fourth quarter.

 

Das pointed out that rising incidents of weather events, financial volatility, and geopolitical tensions pose upside risks to inflation.

 

Despite these concerns, economists are still expecting the RBI to reduce its key interest rate by 25 basis points to 6.25% at the February policy meeting, primarily to support the economy, which has shown signs of slowing down.

 

In addition to these developments, a government panel is reviewing the Consumer Price Index (CPI) basket, based on the 2022-23 Household Consumption Expenditure Survey (HCES).

 

The proposed changes could significantly reduce the weight of food in the CPI basket, with food and beverages currently accounting for nearly 46% of the index.

 

If implemented, these revisions could make retail inflation less volatile, as food prices often cause sharp fluctuations in inflation data.

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