CPI: Rajani Sinha, Chief Economist, CareEdge Ratings

15 Jan 2024 , 11:22 AM

“Elevated food prices and an unfavorable base propelled headline inflation to a four-month peak of 5.7% in December 2023. However, the upside was contained with the sustained deflation in the fuel and light category and a moderation in core inflation just below the RBI’s target of 4%. Despite marginal sequential moderation, food prices remained largely sticky, which drove up the year-over-year growth in December. The persistently high inflation in specific food categories, such as cereals, pulses, and spices, raises concerns about the potential broadening of price pressures. Additionally, inflation of the fruits and vegetable basket, which is seasonal in nature, also remained in double digits. A projected decline in Kharif production and uncertainties surrounding Rabi sowing raise supply-side concerns. Consequently, timely supply-side interventions by the government are pivotal to ensuring effective containment of inflationary pressures within the food basket.

Going ahead, a favorable base effect will persist throughout Q4 FY24, helping absorb potential upward risks to price pressures to a certain extent. Moreover, the arrival of fresh crops into the market from January to March is expected to ease price pressures in the food basket. For the full fiscal year, we expect inflation to average at 5.4%.”