India’s CPI inflation moderated to a 3-month low of 5.10% YoY in Jan-24 vis-à-vis 5.69% in Dec-23
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India’s CPI inflation moderated to a 3-month low of 5.10% YoY in Jan-24 vis-à-vis 5.69% in Dec-23. With favorable winter seasonality exerting its influence, food inflation has started showing initial signs of softening despite few lingering concerns. Meanwhile, deflation continues to grip overall fuel items while core inflation slides to a new record low. Looking at the drivers of inflation in recent months, one is tempted to conclude that successful taming of food inflation can result in headline inflation slipping below 5%. We believe there is strong likelihood of such an outturn in the backdrop of range-bound movement in international commodity prices, relatively stable exchange rate, continued improvement in quality of fiscal adjustment, and some moderation in domestic growth momentum. As such, we maintain our FY25 CPI inflation forecast of 4.8% vs. an estimated level of 5.3% in FY24. However, climate and geopolitical risks need to be monitored closely.