New Delhi [India], January 12 : Retail inflation in India is unlikely to come down much but is expected to hold at nearly the same level in the January-March 2024 quarter.
Once the CPI comes under control for fruits, vegetables, spices, and cereals, headline inflation is expected to drastically reduce to come near the mid-point of the RBI inflation target of 4 per cent, said SBI Research in a report.
"We expect CPI inflation to come down to 5.0 per cent by March 2024," the SBI Research in its Ecowrap report said, hours after official data showed retail inflation in December rose to a four-month high.
Retail inflation in India rose at its fastest pace in four months in December 2023, largely due to a spike in cereals, products and eggs. Sub-index for vegetables; meat and fish declined substantially. Retail inflation or Consumer Price Index, came in at 5.69 per cent in December, against 5.55 per cent in November. The October consumer price index (CPI) was at 4.87 per cent and 5.02 per cent in September.
Retail inflation in India, though, is in the RBI's 2-6 per cent comfort level but is above the ideal 4 per cent scenario.
Coming back to the SBI Research report, interestingly, the latest average modal prices in e-NAM mandis are higher than the MSP for FY24 for the majority of crops.
"Even the mandi prices is higher than the MSP for most of the crops. Thus, it seems that the Government's efforts to increase MSP is now making a clear impact, as MSP is now becoming a floor for prices at the physical/digital marketplace. We believe there is a structural change in pricing behaviour," it added.
The general decline in global food prices is expected in the near future, but it hinges on the impact of disruptions around the Red Sea, it added.
Barring the latest fifth straight pause, the RBI has raised the repo rate by 250 basis points cumulatively since May 2022 in the fight against inflation. Raising interest rates is a monetary policy instrument that typically helps suppress demand in the economy, thereby helping the inflation rate decline.
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