CPI Preview: Inflation Likely To Cool Down In March On Lower Food, Fuel Prices

India's retail inflation may continue to ease in March, led by softer food and fuel prices. A panel of economists polled by Bloomberg estimated Consumer Price Index-based inflation at 4.9% in March, compared to 5.1% in February and January.

Inflation has been within the central bank's tolerance band of 4% plus or minus 2% since September last year, and is now expected to inch closer to the 4% target.

Overall, easing in momentum is expected in key food categories where inflation has been persistent, such as vegetables and spices, offset to an extent by a seasonal uptick in meat, fish and fruit prices, stated a research note by Barclays. Food prices are expected to decelerate to 7.3% on an annual basis in March, compared to 7.8% in February, said Shreya Sodhani, regional economist at Barclays. On a sequential basis, food CPI likely fell by 0.2%, reversing February's 0.1% increase, she said.

The deceleration is mostly driven by declines in retail vegetable prices. Overall, vegetable CPI inflation is likely to have remained elevated in March, but this would still mark a significant easing from the prior month, according to Barclays.

The downtick in headline CPI inflation is also likely on account of a cut in LPG (cooking gas) prices on March 8, which were reduced by Rs 100 per cylinder, and reduction in domestic pump prices of petrol and diesel on March 15, when prices were cut by Rs 2 per litre ahead of the general elections in April-May, Deutsche Bank said in a note.

Irrespective of lower print, the Monetary Policy Committee is not expected to change stance or cut the benchmark repo rate at its next meet in June, given the continuing focus on reining in inflation for price stability, amid resilient economic growth.

The US June cut, too, looks to be a shut case, but Fed may still be motivated to guide towards cuts this year to engineer a soft landing, said Madhavi Arora, lead economist at Emkay.