India’s CPI inflation continued to descend lower in Dec-24, coming at 5.22% vs. 5.48% in Nov-24
Download ReportQuantEco Research || Dec-24 CPI: Seasonal decline ain’t good enough
India’s CPI inflation continued to descend lower in Dec-24, coming at 5.22% vs. 5.48% in Nov-24. The pace of CPI inflation decline in Dec-24 was insignificant – i.e., only 25 bps, owing to less than warranted decline in pace of vegetables. As per our analysis, Nov-Dec-24 correction in vegetable prices extinguished only 32% of the build-up seen over Jun-Oct-24 – which is the lowest percentage correction recorded over the last 10 years (barring 2019 and 2021). Having said, outlook for Jan-25 appears more comforting. The pace of moderation is already almost double (i.e., up to 11th Jan), compared to the correction seen over the full month of Dec-24. This stronger winter seasonality, along with traction in Rabi sowing and a likely record production of wheat, should help food prices to drift lower meaningfully in Q4 FY25.
We had revised our FY25 CPI inflation estimate higher by 20 bps to 4.9%. We hold on to this view, as amidst the recent depreciation in Rupee, some degree of upside will also be imparted by imported inflation. For FY26, we anticipate CPI inflation to ease to 4.3%, led by moderation in food prices, even as core inflation continues to trend marginally higher (for details, see our India Macrobook, released on 8th Jan-25).
The inflation upside, recent hawkishness displayed by the US Fed coupled with a build-up of FX risks has prompted us to roll over our rate cut call to Apr-25 from Feb-25, while retaining our call of cumulative easing space of 50 bps.