India's CPI Inflation Falls To Three-Month Low Of 5.1% In January

India's retail inflation eased to the lowest in three months in January, benefiting from a broad-based moderation in prices.

The Consumer Price Index-based inflation stood at 5.1% in January, as compared with 5.69% in December, according to data from the Ministry of Statistics and Programme Implementation, released on Monday.

Food price inflation declined to 8.30% in January, as compared with 9.53% in December. Core inflation—excluding food and fuel—fell to 3.6% in January, from 3.9% in December last year. This was the lowest print since November 2019.

Rural inflation fell to 5.34% in January, as compared with 5.93% in December. Urban inflation stood at 4.92% in January, as against 5.46% in December.

Consumer price inflation remains within the central bank's tolerance band of 4 (+/- 2)% for the fifth straight month. A panel of 36 economists polled by Bloomberg had estimated a reading of 5% for January.

The mild upside surprise on CPI inflation has come on the back of higher-than-expected food inflation, led by higher sequential momentum in eggs, meat and fish, and pulses, while cereals remained under pressure despite rising materially in 2023, said Madhavi Arora, lead economist at Emkay. Vegetable inflation has also remained elevated, with sequential contraction being less than the usual seasonal behaviour, she said.

Factors like delayed sowing amid a patchy monsoon and consequent delayed Kharif harvest have been impeding a higher correction in their prices, Arora explained. The truckers' strike earlier in the month may have also contributed to the disruption to supply of fruits and vegetables. Nonetheless, core disinflation has continued, with core inflation ex-intoxicants printing the lowest print in nearly four years, she said.

• Cereal prices rose by 7.8%, as against a rise of 9.93% in December.

• Inflation in meat and fish was at 1.2%, as compared with 1.15% in the previous month.

• Inflation in eggs was at 5.6%, up from 4.36% in the previous month.

• Inflation in milk and milk products was at 4.6%, as compared with 5.1%.

• Prices of oils and fats declined 14.96%, in line with the fall seen in the previous month.

• Vegetable prices rose 27%, as compared with 27.6%.

• Pulses inflation was at 19.5%, as against 20.7%.

• Clothing and footwear inflation was at 3.4% versus 3.6%.

• Housing inflation was at 3.2% versus 3.6%.

Food and beverage inflation eased by 0.5% in January, as compared with the previous month. Among major food items, on a sequential basis, vegetables and fruits showed a decline in momentum, along with pulses and oils. Meanwhile, cereals and eggs saw a rise in prices.

CPI inflation is projected to ease below 5% in February-March, and average at 5.3% in FY24, according to Aditi Nayar, chief economist at ICRA. Nayar estimates CPI inflation at 4.6% thereafter in FY25, broadly in line with that of the MPC, based on the assumption of a normal monsoon, she said.

"The MPC’s expectations around the growth outlook and its forecast that the CPI inflation will moderate while remaining above the 4% target, reinforces our view of a likely shallow rate cut cycle," said Nayar, who foresees cumulative rate cuts of 50-75 basis points commencing in the August 2024 meeting, and a stance change in the preceding review, after there is some visibility on the monsoon turnout.