India’s retail inflation likely inched up to 0.8% in November from a record low of 0.25% in October, largely driven by fading base effects, a Mint poll of 20 economists showed. While inflation is expected to have bottomed-out in October, prices pressures are expected to remain weak both in foods (due to a good monsoon and harvest) and non-foods (due to GST cuts and possibly weak demand).
India's retail inflation likely inched up to 0.8% in November from a record low of 0.25% in October, largely driven by fading base effects, a Mint poll of 20 economists showed. While inflation is expected to have bottomed-out in October, prices pressures are expected to remain weak both in foods (due to a good monsoon and harvest) and non-foods (due to GST cuts and possibly weak demand).
The economists projected inflation, as measured by the consumer price index (CPI) would be in the range of 0.5-1.0%. If their projections prove accurate, this will be the fourth time in five months that inflation comes in below the lower end of the 2-6% target band. Retail inflation data is scheduled to be released on Friday.
"CPI inflation is expected to rise entirely on the back of narrowing deflation in the food and beverages segment, even as inflation in non-food and beverage items is unlikely to see a material change," said Aditi Nayar, chief economist at Icra Ltd.
Food deflation is expected to narrow mainly due to the fading base effect. It had eased to 9% in November 2024 from 10.9% the previous month. A similar outcome is expected more broadly as headline inflation had eased to 5.5% from 6.2%.
Food, which accounts for nearly 40% of the overall inflation basket, has significant influence on its overall trajectory. It has been in negative territory for five months, pulling down overall inflation down.
Core inflation, which excludes food and fuel, is expected to remain around 4%, mainly due to a sharp rise in metal prices. The underlying pressures are seen to be weak, also helped by the GST cuts. Apart from the overall low inflation due to depressed food prices, the lack of momentum in core inflation may warrant more rate cuts.
"There are no signs of demand-driven price pressures (core), which should concern the RBI, leaving room to maintain growth-centric monetary policy and provide a cushion against economic weakness in the upcoming quarter," said Dhiraj Nim, an economist at ANZ Bank.
Last week, the RBI delivered a 25-basis-points (bps) rate cut, taking the total since February to 125 bps. It was a close call as inflationary pressures were at a record low even as GDP growth surpassed expectations. The central bank also lowered its inflation forecast for the full year from 2.6% to to 2.0%, while raising its GDP growth forecast from 6.8% to 7.3%.
Should inflation come in as projected in November, the average for October-November will be 0.5%, broadly in line with the latest RBI projection of 0.6% for the third quarter. While economists believe that inflation is in a structurally low period, a February cut may be unlikely as the central bank will want transmission of December rate cuts to become evident.