Core Inflation To Move Towards 4% By 2024-End: Bank of Baroda's Madan Sabnavis

The core inflation may move towards 4% by the end of 2024 after the latest data indicated an uptick, according to Madan Sabnavis, chief economist at Bank of Baroda. He said an increase in core inflation was a normal indicator of demand and it could be time for corporates to increase the prices of their products.

"So, what we have seen now is the beginning of a particular spiral, where core inflation is going to move towards its normal rate, which is in the region of 4–5%, I believe," Sabnavis told NDTV Profit.

"Several corporates have already announced that for the last two years, they have not increased their prices because of the fact that overall inflation was high. So, I think it's time for them to start increasing prices,” he said.

India’s retail inflation dropped to a five-year low of 3.54% in July 2024. The inflation also decreased on a month-on-month basis from 5.08% in June 2024, according to the data by the Ministry of Statistics and Programme Implementation on Aug. 12. However, the core inflation, which excludes food and fuel costs, increased by 3.37% in July 2024 compared to 3.15% in June.

Sabnavis expects core inflation numbers to move towards nearly 4% by the end of the year. "It is a normal indicator because we had abnormal numbers in the range of around 3%. Historically, if you look at core inflation, that is, from the time it came through, it has averaged closer to 5%," he said.

Sabnavis added that core inflation had been higher than food inflation and that core inflation primarily comes from the corporate sector. "If you look at it on a monthly basis, the number of months in which core inflation was above 5% has been higher than food inflation."

Core inflation comes from the corporate sector and hence, there is always a case of saying that input costs keep increasing regularly. There is a certain kind of profit margin that has to be added and there is also the demand-side influence that comes through, according to Sabnavis.

The Bank of Baroda chief economist said that while food inflation is likely to come down, he expects core inflation to witness an increase. Sabnavis added that, after the rise in core inflation, the monetary policy committee of the Reserve Bank of India would have to be a bit more cautious.

Inflation per se is going to come down on the food basket side. On the other hand, core inflation is going to keep witnessing an increase, but it is not going to be as prodigious as what was seen for food inflation, according to Sabnavis. "However, it will definitely be moving towards a 4% mark, which means the MPC members will have to be a bit more cautious and a bit more circumspect when they are passing judgments about the future direction of inflation."