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Food inflation slowed to 9.04%, compared to 10.87% the previous month
Vegetable prices, a major driver of food inflation, rose 29.33% year-on-year in November
India’s retail inflation eased in November, driven by moderating vegetable prices, raising expectations of an interest rate cut by the central bank during its next policy review as concerns about slowing economic growth persist.
Retail inflation dropped to 5.48% in November, down from 6.21% in October and below economists’ forecast of 5.53% in a Reuters poll.
According to Consumer Price Index (CPI) data released by the National Statistics Office (NSO), the inflation in the food basked reduced to 9.04% in November. It was 10.87% in October and 8.70% in November 2023.
“During the month of November 2024, a significant decline in inflation is observed in vegetables, pulses and products, sugar and confectionary, fruits, eggs, milk and products, spices, transport and communication and personal care and effects subgroups,” the NSO said.
Sujan Hajra, Chief Economist & Executive Director, Anand Rathi Shares and Stock Brokers, noted that the Consumer Price Index inflation for the month moderated to 5.48%, aligning with expectations.
“While food inflation eased slightly, driven by a decline in vegetable prices, which showed sequential moderation, food inflation remained elevated due to higher edible oil prices. At the same time, core inflation displayed an uptick, warranting attention,” Hajra added.
Vegetable prices, a major driver of food inflation, rose 29.33% year-on-year in November, a significant decline from the 42.18% increase recorded in October. The easing of inflation comes amid a sharp slowdown in GDP growth, which fell to a seven-quarter low in the July-September period, bolstering expectations of a rate cut at the February meeting of the Monetary Policy Committee (MPC).
Looking ahead, “we anticipate further moderation in food prices, supported by a robust rabi harvest. This should provide some relief to inflationary pressures. The MPC will have the benefit of another round of inflation data before its next meeting,” Hajra added.
Given the evolving inflation dynamics, the RBI may consider initiating a shallow rate cut cycle starting in February, contingent on favourable trends in inflation and no sharp acceleration of growth, Hajra underlined.
The February meeting will be the first under newly appointed Reserve Bank of India (RBI) Governor Sanjay Malhotra.
Earlier this month, the RBI kept interest rates steady but reduced the cash reserve ratio for banks to ease monetary conditions and support growth. The recent moderation in vegetable prices is attributed to a bumper summer crop supported by favorable monsoon rains. Strong monsoon conditions, adequate reservoir levels, and higher minimum support prices are expected to boost winter crop production, further easing food inflation in the months ahead.
“The deflationary trend in food prices, especially vegetables, combined with the lagged impact of weaker demand, should help bring headline CPI below 5% in December,” said Garima Kapoor, an economist at Elara Securities told Reuters, who anticipates a 25-basis-point rate cut by the MPC in February.
Cereal inflation stood at 6.88% in November, slightly down from 6.94% in October, while inflation for pulses dropped to 5.41% from 7.43%.
“Further declines in food inflation will exert downward pressure on the headline rate, while softer economic growth should help contain core inflation,” noted Harry Chambers, an economist at Capital Economics.
Core inflation, which excludes volatile components such as food and energy, ranged between 3.64% and 3.7% in November, marginally lower than October’s 3.7%.
(With agency inputs)
