Retail Inflation Declines to 5.5% Strengthening Rate Cut Hopes 

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After surpassing RBI’s tolerance level in October, retail inflation finally eased to 5.5% in November. This has not only been felt as a sigh of relief but also seems like a silver lining for the upcoming RBI’s MPC meet in February 2025. Food prices moderating has mainly given hope to all as per data released by the National Statistical Office (NSO) yesterday. 

Inflation Data by NSO

Overall Inflation

The inflation rate in India measured by the Consumer Price Index (CPI) increased at an annualized rate of 5.48% in November, compared to a 6.21% rise in October, which was above the tolerance level of RBI, which is 6%. The rise in CPI in November 2024 is almost the same as of November 2023 when the CPI rose by 5.6%. In November, rural inflation stood at 5.95% while urban inflation came down to 4.83%.

Food Inflation

Coming to food inflation, the Consumer Food Price Index (CFPI) on a YoY basis can be around 9.04% as per NSO data. The rise in food prices in rural areas is around 9.10% while in urban it is comparatively lower with an 8.74% rise. The food prices have significantly come down as in October the CFPI stood at 10.87%, the highest in the past year. 

Having said that, the vegetable prices rose significantly in November as well. It increased by 29.3% while the edible oil prices soared to a 30-month high by increasing by 13.3%. 

Housing Inflation

The housing inflation rate increased by 2.87% YoY this November. It was at 2.81% in the previous month, which shows a further rise in the prices of the properties and similar assets. 

Rate Cut Hope Strengthens

As India’s inflation rate declined overall in November, the hopes for repo rate cuts in the MPC meeting of RBI in coming February ignite again. The experts anticipate that the average inflation for FY25 will be 4.6%, which is near the RBI’s target inflation rate of 4%. Thus, a rate cut in February seems possible if the declining trend in the inflation rate continues. 

Industrial Output Data by NSO

The industrial output for October 2024 on the other hand rose by 3.5% (annualised), a bit higher than the 3.1% recorded in September. 2024. However, if it is compared with October 2023, then the industrial output has dropped hugely as last year it was 11.9% in October. The manufacturing sector rose 4.1% during October up from 3.9% in September. However, it was 10.6% in October 2023.  Mining sector output only increased by 0.9%, while a year back it rose by 13.1%. Similarly, the power/ electricity output rose nominally by 2% in October compared to 20.4% in October 2023. 

Outlook 

All these suggest that though there has been an upsurge in output and demand compared to the previous month, it is much lower to get to the previous year’s level. The rural remand seems more promising currently and favourable weather conditions for the Rabi sowing season make it more potent. The agricultural output is expected to stay healthy as soil moisture level has improved with extended monsoon, and reservoir levels are widely maintained. Having said that, urban consumption remains sluggish and thus needs to be monitored well. Domestic consumption currently is crucial for industrial output growth, as external demand is low. 

Source: TheTimesofIndia

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