India's retail inflation eases to 5-month low, boosting rate cut hopes
The economy is expected to grow at its slowest pace in four years
INDIA’S retail inflation slowed to a five-month low in January as food price inflation eased, boosting the odds of another rate cut in the South Asian economy where growth is slowing amid the escalating threat of a global trade war.
Annual retail inflation in January was at 4.31 per cent, lower than economists’ estimate of 4.6 per cent and 5.22 per cent in the previous month. Retail inflation was at 3.65 per cent in August 2024.
Food inflation eased to 6.02 per cent from 8.39 per cent in December.
Cooling inflation boosts chances of further policy easing by India’s central bank, which cut its key policy rate for the first time in nearly five years in February in a bid to boost an economy that is expected to grow at its slowest pace in four years.
The government also announced sweeping income tax cuts in its February 1 budget to lift consumption.
The Reserve Bank of India sees inflation averaging 4.8 per cent in the current financial year that ends on March 31 and expects it to fall to 4.2 per cent next year, it said last week.
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“The sharp fall in Indian headline consumer price inflation in January reinforces that the RBI will continue to loosen monetary policy over the coming months to support the economy,” said Harry Chambers, an economist at Capital Economics.
The central bank targets inflation at 4 per cent within a tolerance band of 2 percentage points on either side.
In January, vegetable prices rose 11.35 per cent year-on-year, compared with a 26.60 per cent increase in the previous month.
Prices of cereals rose 6.24 per cent against a 6.50 per cent gain in December, while those of pulses gained 2.59 per cent against 3.80 per cent. Prices of vegetables and pulses fell from the previous month.
Winter harvests have helped moderate food prices, but warmer-than-usual temperatures in March could pose risks to crops like wheat.
Core inflation, which excludes volatile items such as food and energy and is seen as a better gauge of domestic demand, quickened to 3.7 per cent in January from 3.6 per cent in the previous month, according to two economists.
Last week, RBI governor Sanjay Malhotra said the central bank is alert to all pressures on inflation and will be watchful of the impact of rupee depreciation on local prices.
A 5 per cent depreciation in the rupee impacts domestic inflation to the extent of 30 basis points to 35 basis points, he said.
A potential trade war dragged the rupee to its lifetime low of 87.95 per US dollar in February, boosting worries about higher inflation on imported goods.
US President Donald Trump’s trade advisers were finalising plans on Wednesday for the reciprocal tariffs the president has vowed to impose on every country that charges duties on US imports, ratcheting up fears of a widening global trade war.
Indian Prime Minister Narendra Modi is expected to propose increased energy and defence imports during a two-day U.S. visit from Wednesday. REUTERS
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