Retail Inflation Latest Data:Retail inflation has come down to 5.22% in December 2024, which is the lowest level in the last four months. In November 2024 this rate was 5.48%. This decline in inflation rate is mainly due to softening of prices of food items. According to the data released by the National Statistical Office (NSO), food inflation declined to 8.39% in December, which was 9.04% in November.
Why did the inflation rate soften?
The fall in prices of food items was the main reason for the decline in inflation rate. Improvement in supply of vegetables and other essential commodities has led to stability in prices. NSO said that in December, both the General Consumer Price Index (CPI) and food inflation were the lowest in the last four months.
Impact on Reserve Bank’s monetary policy
The Reserve Bank of India (RBI) had increased the inflation rate estimate for the current financial year from 4.5% to 4.8%. However, the decline in inflation rate in December may put pressure on the Monetary Policy Committee (MPC) to cut interest rates.ICRA Chief Economist Aditi Nair says that “CPI inflation rate in December was 5.2%, which is lower than 5.5% in November, but the pace of decline was less than expected. If the decline in vegetable prices continues, then in February “Some members may consider cutting rates in the 2025 meeting.”
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Impact of foreign currency and international situation
Kunal Kundu, India Economist of Societe Generale, said, “The softening of food prices in December has brought relief to the RBI, but due to the weakness of the rupee and global economic uncertainty, doubts remain over a rate cut in February.”According to Sakshi Gupta, Chief Economist of HDFC Bank, “RBI may remain cautious about cutting interest rates in the February 2025 policy. However, there is a possibility of a cut in April 2025. Rupee fall and global economic conditions. can also influence policy making.”
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Estimate of future inflation rate
Upasana Bhardwaj, Chief Economist, Kotak Mahindra Bank, said, “Both food and core inflation have declined. Food prices may fall further due to the arrival of winter crop. We expect inflation to remain within the RBI target of 4% in the next few months.” Will move towards the goal of.Gaura Sen Gupta, economist at IDFC First Bank, said, “January sees a further decline in daily food prices, which could push CPI inflation below 5%. Domestic conditions favor a rate cut in February, but “Weakness of the rupee may postpone this.”
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Food supply and global risk
Garima Kapoor, economist at Elara Securities, said, “Food prices are expected to continue to fall due to supplies of new crops in January. However, the weakening rupee and rise in crude oil prices may put pressure on inflation.”Deepanvita Majumdar, economist at Bank of Baroda, said, “The CPI has seen an improvement due to the decline in vegetable inflation. However, inflation may remain under pressure due to the weakness of the rupee and increase in energy prices.”
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Will RBI consider cutting interest rates?
The general public has got slight relief from the decline in retail inflation rate in December 2024. However, the international economic situation and the weakness of the rupee may have an impact on the monetary policy. Experts believe that if food inflation continues to decline, RBI may consider cutting interest rates in future.
