A Reuters poll had predicted India’s inflation in January would fall to 4.6 per cent.
Such a fall would be a relief for most Indian households, who spend a significant amount of their budgets on food.
A sharp decline in inflation will also be welcomed by the Reserve Bank of India, which cut the repo rate by 25 basis points to 6.25% late last week.
India’s retail inflation had surged to a 14-month high of 6.2% in October, with food inflation reaching a 15-month high of 10.9%.
Food inflation:
Fresh winter produce reaching local markets has moderated food price rises, which make up about half of the consumer price index (CPI) basket.ALSO READ: Sanjay Malhotra-led MPC projects inflation at 4.2% for FY26
Within food items, cooling vegetable prices probably contributed the most, economists said.
“Apart from wheat and vegetable oil (prices), all other food categories are showing signs of moderation. The softness in food prices, usually witnessed during winter months, is also supported by a healthy kharif (autumn season) output,” said Sakshi Gupta, principal economist at HDFC Bank.
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Sharply falling inflation also gives the central bank some wiggle room in its new focus on addressing slowing economic growth as overall inflation is still above its 4.0% medium-term target.
RBI on inflation:
RBI’s Monetary Policy Committee (MPC) last week said that the inflation has declined, supported by a favourable outlook on food and is expected to moderate in FY26, offering further relief to Indian households.
The RBI’s mandate is to keep inflation within a 2-6% target range.
With the new governor Sanjay Malhotra at the helm, the RBI has forecasted inflation at 4.2% for the fiscal year 2025-26. For the four quarters of FY26, the RBI MPC has projected inflation to be at 4.5% in the first quarter; Q2 at 4%; Q3 at 3.8% and Q4 at 4.2% with risks evenly balanced.
Malhotra noted that inflation has eased from a peak of 6.2% in October 2024 to lower levels in November-December, mainly due to falling vegetable prices. CPI inflation for 2024-25 has therefore been projected at 4.8%, with further moderation expected in 2025-26, assuming a normal monsoon.
Earlier last month, the Economic Survey for 2024-25 projected that food inflation is likely to soften in Q4 FY25, while acknowledging that global uncertainties continue to pose risks. The report, prepared by the Chief Economic Advisor to the Finance Ministry, underscored the fact that India’s inflation landscape in 2024-25 remains a mixed bag of progress and persistent challenges.
While the country had managed to bring retail inflation down to a four-year low of 5.4% in FY24, new economic headwinds—including a weakening rupee, volatile inflation, and declining foreign investment—threaten macroeconomic stability.
RBI governor in the beginning of his address said that the average inflation has been lower post the production of inflation targeting framework and that this flexible model has served India well.
Content Source: economictimes.indiatimes.com