On a stable footing?

As the National Statistical Office (NSO) recently unveiled its monthly data indicating that India's retail inflation, measured by the Consumer Price Index (CPI), reached a four-month high of 5.9 per cent in December, policymakers and experts find themselves at the intersection of crucial economic considerations. This release comes as the last piece of inflation data before the Union Budget presentation on February 1, setting the stage for the Reserve Bank of India's (RBI) February monetary policy committee meeting and influencing discussions in the context of upcoming general elections. Upon scrutiny, the NSO data reveals a somewhat balanced economic scenario, with growth and inflation figures remaining within control. The average consumer price inflation for the October-to-December quarter stands at 5.4 per cent, slightly below the RBI's projection of 5.6 per cent, providing a buffer against excessive inflationary pressures. Notably, the persistent driver of inflation remains food prices, with cereals, vegetables, pulses, sugar, and spices leading the charge. The national-level consumer price food index stands at 9.5 per cent, rising to 10.42 per cent in urban areas. In December, inflation for pulses, vegetables, fruits, and sugar was notably high, reaching 20.73 per cent, 27.6 per cent, 11.14 per cent, and 7.14 per cent, respectively. However, inflation for cereals and spices, though slightly lower, remains significant at 9.9 per cent and 19.7 per cent. Conversely, products like milk, meat and fish, and eggs experienced easing inflation rates at 5.1 per cent, 1.15 per cent, and 4.4 per cent, respectively. Interestingly, while the year-on-year prices of vegetables, particularly onions and tomatoes, witnessed an upward trajectory, a month-on-month analysis reveals deflation in many of these items. Overall vegetable prices saw a 5.3 per cent deflation, with potatoes, onions, and tomatoes contracting by 5.9 per cent, 16 per cent, and 9.4 per cent, respectively. These trends suggest that the volatility in vegetable prices is seasonal and may exhibit variations in the coming months. However, the persistence of inflation in cereals and pulses is cause for concern, especially as expectations for low kharif harvests loom. Given that cereals and pulses form staple sources of protein and carbohydrates for a significant portion of the Indian population, sustained inflation in these segments could not only impact consumption, a primary driver of economic growth, but also contribute to malnutrition among vulnerable segments of society. On a positive note, the data reveals a drop in core inflation to a modest 3.8 per cent, marking its slowest rate since January 2020. Core inflation, which excludes volatile items such as food and fuel, offers a stable and accurate reflection of underlying inflationary trends in the economy. Looking ahead, the RBI projects a moderation in inflation from 5.2 per cent in the first quarter of 2024-25 to 4 per cent in the second quarter and 4.7 per cent in the third quarter. While these estimates indicate a certain level of control, they also imply that a repo-rate cut remains a distant prospect for the Indian economy in the near future. To sum up, the recent inflation data prompts a comprehensive assessment of India's economic landscape. Policymakers are already walking the tightrope in a bid to address persistent inflation in essential commodities and foster economic growth. The trajectory of inflation, particularly in staple food items, warrants close monitoring, and strategies for sustainable agricultural practices and supply chain resilience must be prioritised to ensure the well-being of both the economy and its citizens. As India stands at this economic juncture, the decisions made in response to these inflationary pressures will undoubtedly shape the trajectory of the nation's economic resilience and growth, which have thus far stood the test of time.