India’s consumer inflation likely declined sharply to a five-month low of 4.60% in January, down from 5.22% in December, as food price increases slowed, according to a Reuters poll of economists.
The drop in inflation offers relief to Indian households, which allocate a significant portion of their budgets to food. It is also welcomed by the Reserve Bank of India (RBI), which recently cut the repo rate by 25 basis points to 6.25%.
The arrival of fresh winter produce in local markets has eased food price pressures, which account for nearly half of the Consumer Price Index (CPI) basket. Economists noted that declining vegetable prices played a key role in bringing down inflation.
According to a Reuters survey conducted from February 4-10 among 56 economists, CPI-based inflation fell to 4.60% in January. Forecasts for the official data, set to be released on February 12 at 1030 GMT, ranged between 4.20% and 5.10%.
“Except for wheat and vegetable oil, most food categories are showing signs of moderation. The usual seasonal softness in food prices during winter is also supported by a strong kharif harvest,” said Sakshi Gupta, principal economist at HDFC Bank.
The sharp fall in inflation gives the RBI some flexibility in addressing slowing economic growth, though overall inflation remains above its 4% medium-term target.
Kanika Pasricha, chief economic advisor at Union Bank of India, said inflation is moving towards its target and is expected to stabilize at 4% over the next three to six months.
The RBI’s mandate is to keep inflation within a 2-6% range. Meanwhile, core inflation, which excludes volatile food and energy prices, is estimated to have slightly increased to 3.70% in January from 3.60% in December, according to the poll. The Indian statistics agency does not publish core inflation data.
With inputs from Reuters