Core inflation rises, hopes rest on new CPI series

The country’s retail inflation quickened to a three-month high of 1.33 per cent in December, though it remains well below the Reserve Bank of India’s comfort level threshold of 2 per cent. CPI is expected to decline once new series numbers are released.

Core CPI rose to 4.7 per cent as price of gold and silver surged again, with core ex-gold staying modest at 3.8 per cent.

The CPI is currently tracking at 2.3 per cent, with base effects fading further and food prices increasing marginally. However, Emkay notes that January CPI will be the first under the new CPI series, and thus, the value may differ from forecasts. It is likely that the weight of food will be lower, among other changes, which will reduce headline CPI volatility going ahead.

With RBI delivering a dovish rate cut in December, experts do not rule out another cut in this cycle. However, several push-and-pull factors remain, including upcoming Union Budget.

Headline CPI inflation rose to 1.33 per cent in December, even as food price deflation continued. Monthly momentum declined to 0.1 per cent, the lowest since September, driven by food. Within this segment, vegetable prices fell further and remained in deep deflation on a year-on-year basis. Other significant movers included eggs, meat, fish, and fruits.

Core inflation climbed to 4.7 per cent, with monthly momentum rising to 0.3 per cent. This was largely attributed to a sharp rise in gold prices, while silver prices jumped 18 per cent on a monthly basis. As a result, the personal care category prices increased 3.3 per cent on a month-on-month basis.

Feb-26 rate cut possible, but various push-and-pull factors in play

While the RBI acknowledged persistent inflation undershoots and delivered a 25-basis-point cut in December, the Governor’s tone was dovish, noting that underlying price pressures are even softer once the effect of gold is stripped out. The MPC minutes also reflected a broad-based focus toward waning growth momentum.

However, another 25-bps rate cut in February remains on the table, though several factors will influence the decision. These include the upcoming Union Budget, which would outline the government’s fiscal priorities, the next FOMC meeting later in the month, any signs of a US-India trade deal, and ongoing developments in the foreign exchange market.