Retail inflation based on the Consumer Price Index (CPI) declined to a 10-month low of 4.85% in March from 5.09% in February, on account of the statistical effect of a high base as the overall index remained flat sequentially, data released by the National Statistical Office showed on Friday. In March 2023, CPI inflation was at 5.66%.
The headline figure came along expected lines; an FE poll of 20 economists had seen a median projection of 4.9%.
Food inflation during March eased slightly to 8.52% from 8.66% in February, but this was on a high base as prices rose on a month-on-month basis. Sequentially, the Consumer Food Price Index (CFPI) rose 0.2% month.
Core inflation, meanwhile, continued to fall further, and declined to a series low of 3.3% in March. In February, the core print was at 3.4%. Economists expect core inflation to continue on the declining spree at least till July.
Within the food basket, sequential price increases were recorded in cereals, meat and fish, milk, and vegetables; whereas, eggs, edible oils, pulses and spices recorded a decline during March.
The year-on-year inflation in ‘cereals and products’ rose from 7.60% in February to 8.37% in March, despite the beginning of the harvesting of the wheat crop during the month. The government has set a higher wheat production target of a record 114 million tonnes (MT) for the 2023-24 crop year (July-June) against an estimated output of 110.5 MT in 2022-23.
The March inflation print of ‘cereals and products’ is at variance with the Reserve Bank of India’s view that “an expected record rabi wheat production in 2023-24, however, will help contain cereal prices.”
In the coming months, the projections of “above-normal” temperature coupled with heat-wave conditions are likely to keep prices of pulses, milk and vegetables elevated. Many economists expect CPI inflation to average 5-5.2% in Q1FY25 as against 4.9% projection of the RBI, due to high food inflation.
The ‘fuel & light’ group’s deflation deepened further to (-)3.24% in March as compared to (-)0.77% in February, on account of cuts in the prices of petrol, diesel and LPG. But, the ongoing uptrend in international crude oil prices could pose a risk to the CPI inflation outlook in the near term, say economists.
“Although the extent of the impact would depend on the pass-through to retail fuel prices, and the impact of such transmission would be relatively lesser compared to the WPI inflation,” said Aditi Niyar, chief economist, Icra. So far in April, the price of India’s crude oil basket has averaged $90.45 a barrel, higher than $84.49 in March.
On the monetary policy front, economists say that the recent increase in commodity prices supports the recent caution by the RBI on the disinflationary trend. “We expect the central bank to cut rates not before Q3 FY25,” said Sakshi Gupta, principal economist, HDFC Bank.
CareEdge’s Chief Economist Rajani Sinha also expects the rate cut cycle to begin in Q3FY25. “Given that the RBI Governor has been highlighting the aim of getting inflation to 4% on a durable basis, the policy rates are likely to be kept on hold with no change in stance,” she said. The repo rate currently stands at 6.5%.