India’s retail inflation eased to 5.48% in November, down from 6.21% in October, marking a significant reduction after reaching a 14-month high. The decline was primarily driven by cooling food prices, with food inflation moderating to 9% in November compared to 10.9% in the previous month. Vegetable inflation, a key contributor to elevated consumer prices, dropped sharply from 42% in October to 29% in November. Excluding vegetables, overall inflation stood at 3.9%, comfortably below the Reserve Bank of India’s (RBI) lower threshold of 4%.
Rajani Sinha, Chief Economist at CareEdge, noted, “The moderation in vegetable prices played a crucial role in bringing down the inflation rate. The November data aligns with the projected 5.5% median forecast from various analysts.” Despite this decline, inflation remains above 5% for the third consecutive month, presenting challenges for the RBI as it navigates monetary policy decisions.
Policy Challenges Ahead
The persistent inflationary pressures pose a dilemma for the RBI’s Monetary Policy Committee (MPC), which maintained the policy rate unchanged for the 11th consecutive time during its December meeting. Experts predict inflation will remain above 5% in December, complicating decisions on interest rates in February 2025.
Madan Sabnavis, Chief Economist at Bank of Baroda, commented, “With India’s retail inflation expected around 5.4% in December, the central bank will face a tough call on rates in February. However, a higher base effect from categories like pulses, fruits, and spices may aid in further cooling inflation in early 2025.”
Paras Jasrai, Senior Analyst at India Ratings and Research, added that core inflation was largely stable at 3.6% in November. He emphasized that demand conditions are unlikely to change significantly through December, indicating a steady trajectory for core inflation in the near term.
The RBI has already revised its annual inflation forecast upward from 4.5% to 4.8% following October’s higher-than-expected reading. However, analysts remain optimistic about inflation easing further in 2025.
Food Prices and Future Trends
Despite overall improvements, certain food categories continued to exhibit high inflation rates in November. Potatoes recorded a staggering 66.6% inflation, up from 64.9% in October, while garlic inflation remained over 80%. Carrots and pulses also saw double-digit inflation, highlighting the uneven nature of price moderation.
The personal care and effects category, influenced by rising gold and silver prices, contributed to core inflation staying elevated in November. Experts suggest that favorable monsoon conditions and improved agricultural output could further stabilize food prices, supporting the RBI’s inflation management efforts.
Looking ahead, the Asian Development Bank forecasts consumer inflation to decline to 4.3% by FY26, down from its earlier projection of 4.5%. If headline inflation falls to 5% or lower by December 2024, economists anticipate the MPC may consider rate cuts in early 2025. Aditi Nayar, Chief Economist at ICRA, stated, “We expect two rate cuts of 25 basis points each in the upcoming easing cycle, contingent on continued moderation in inflation.”
As food prices stabilize and India’s retail inflation shows signs of further cooling, policymakers and consumers alike remain hopeful for sustained economic relief in the months ahead.
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