Retail Inflation In Nov Eases To 5.48 PC As Food Prices Moderate, Creates Headroom For Rate Cut

New Delhi: Retail inflation declined in November to 5.48 per cent and came within the Reserve Bank's comfort zone mainly due to easing food prices, creating headroom for a rate cut at the central bank's rate-setting panel meets under new Governor Sanjay Malhotra in February. The Consumer Price Index (CPI) based headline inflation was at 6.21 per cent in October and 5.55 per cent in November 2023.

"During the month of November, 2024 significant decline in inflation is observed in vegetables, pulses and products, sugar and confectionary, fruits, eggs, milk and products, spices, transport and communication and personal care and effects subgroups," National Statistics Office (NSO) said in a statement.

According to the CPI data released by the NSO on Thursday, inflation in the food basket reduced to 9.04 per cent in November. It was 10.87 per cent in October and 8.70 per cent in November 2023.

The data revealed that the top five items showing the highest year-on-year inflation in November 2024 were garlic (85.14), potato (66.65), cauliflower (47.7), cabbage (43.58) and coconut oil (42.13). The key items having the lowest year-on-year inflation were jeera (-35.04), ginger (-16.96), LPG excluding conveyance (-10.24) and dry chillies (-9.73).

The government has tasked the RBI to ensure that the headline inflation remains at 4 per cent with a margin of 2 per cent on either side. The RBI has maintained a short-term lending rate (repo) at 6.5 per cent since February 2023.

Aditi Nayar, Chief Economist, ICRA said that led by food inflation, the CPI inflation expectedly eased to 5.5 per cent in November 2024 from 6.2 per cent in October 2024, falling back within the medium-term target range and offering a dose of relief.

She further said that the cumulative sowing of rabi crops exceeded the year-ago levels by 1.5 per cent year-on-year by December 9, 2024, led by pulses, rice, wheat and coarse cereals, whereas the rabi sowing for oilseeds contracted by 4.3 per cent annually.

"In our view, if the headline CPI inflation eases to 5.0 per cent or lower by December 2024, the likelihood of a rate cut by the MPC in its February 2025 meeting would be very high. We maintain our baseline expectation of two rate cuts of 25 bps each in the awaited rate-cutting cycle," Nayar said.

Last week, the RBI Governor headed the Monetary Policy Committee (MPC) had left the repo unchanged at 6.5 per cent citing concern on the inflation front. Sanjay Malhotra took over as RBI Governor on Wednesday after Shaktikanta Das demitted office after completing a six-year tenure.

The Reserve Bank raised the inflation projection for the current fiscal to 4.8 per cent from 4.5 per cent. It also said that the lingering food price pressures are likely to keep headline inflation elevated in the December quarter.

CPI-based headline inflation increased from an average of 3.6 per cent during July-August to 5.5 per cent in September and further to 6.2 per cent in October 2024. The NSO data also revealed that the CPI inflation rate for rural and urban areas was 5.95 per cent and 4.83 per cent, respectively, in November.

Among states, the highest inflation was recorded in Chhattisgarh (8.39 per cent) and the lowest in Delhi (2.65 per cent). It can be observed that after December 2023, the inflation rate for both CPI (General) and CFPI were declining, reaching their lowest point in July 2024, it said.

"However, from August, 2024 to October 2024, an increasing trend was observed. Thereafter, in November 2024 inflation again declined. The decline in inflation in November 2024 is mainly due to decline in inflation in the 'food & beverages' group," NSO added. NSO collects the price data from selected 1,114 urban markets and 1,181 villages.