India’s Retail Inflation Eases to 5.22% in December 2024

India’s retail inflation in December 2024 eased to a four-month low of 5.22%, down from 5.48% in November, primarily driven by moderating food prices, according to the Ministry of Statistics and Programme Implementation. While a Reuters poll had predicted inflation to dip to 5.3%, the actual figure reflects a slightly better-than-expected improvement in price pressures.

Key Drivers Behind Retail Inflation Moderation

The easing of India’s Retail Inflation December 2024 was influenced by favorable agricultural conditions, including a bumper summer crop harvest supported by a robust monsoon. Food inflation, which constitutes nearly half of the Consumer Price Index (CPI), declined from 9.04% in November to 8.39% in December.

Notably:

• Vegetable prices increased by 26.56% year-on-year, lower than the 29.33% in November and 42.18% in October.
• Cereals inflation surged to 9.67% in December compared to 6.88% in November, while inflation for pulses moderated to 3.83% from 5.41%.

The deceleration in rural inflation to 5.76% (from 9.10% in November) and urban inflation to 4.58% (from 8.74%) further contributed to the overall improvement.

Core Inflation Holds Steady

Excluding volatile food and energy prices, core inflation stood at 3.6% in December, slightly lower than November’s 3.7%. This stability reflects subdued price movements in non-food categories, providing some relief to policymakers amid global economic uncertainties.

Future Trends and Projections

Experts anticipate further moderation in retail inflation in the coming months, with ICRA projecting headline inflation to decline to approximately 4.5%-4.7% in January 2025. The ongoing rabi sowing season, which has achieved nearly 88% of the targeted area, is expected to bolster foodgrain production, further easing inflationary pressures.

Aditi Nayar, Chief Economist at ICRA, highlighted that the sharp reduction in vegetable prices in January 2025 would likely lead to a five-month low in food inflation, providing optimism for economic recovery.

Central Bank’s Perspective

The Reserve Bank of India (RBI) has been closely monitoring inflationary trends. In its December Monetary Policy Committee (MPC) meeting, the central bank retained its neutral stance but revised its inflation forecast for the fiscal year to 4.8%, up from 4.5%.

Former RBI Governor Shaktikanta Das emphasized that inflation remains a significant concern due to unpredictable factors such as adverse weather, geopolitical tensions, and financial volatility. However, the RBI signaled potential rate cuts in the near future if inflationary pressures continue to ease.

Retail Inflation: Structural Changes on the Horizon

A potential restructuring of the CPI basket based on the 2022-23 Household Consumption Expenditure Survey (HCES) could reshape how inflation is measured. The food and beverages weightage, currently at 45.9%, is expected to decrease, particularly in rural areas.

Such changes could reduce inflation volatility, making it less susceptible to sharp swings caused by fluctuating food prices. This aligns with suggestions from the 2023-24 Economic Survey to exclude food inflation from the inflation-targeting framework, thereby enhancing policy stability.

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