India’s CPI inflation decelerated sharply to a 5-month low of 4.31% YoY in Jan-25 from 5.22% in Dec-24
Download ReportQuantEco Research || Jan-25 CPI: Favourable seasonality kicks in strongly
India’s CPI inflation decelerated sharply to a 5-month low of 4.31% YoY in Jan-25 from 5.22% in Dec-24. This is attributed to a sharp deceleration in food inflation, led by a strong seasonal correction in vegetable prices. Daily mandi prices for key vegetables suggest further softening of food prices in Feb-25, albeit at a slower pace. If sustained, this could potentially push headline CPI inflation below the 4% target in Feb-25. While that’s comforting, new risks have emerged that warrant close monitoring.
A step-up in the pace of INR depreciation along with the likelihood of dry and warm weather conditions in the near-term poses risk. Considering the current undershooting of the food price trajectory vis-à-vis the long-term trend, we fine-tune our FY25 CPI inflation estimate to 4.8% from 4.9% earlier. For FY26, we continue to expect disinflationary momentum to prevail and maintain our CPI inflation forecast at 4.3%. The anticipated disinflationary momentum is likely to be led by food items, even as core inflation is expected to edge up and fuel inflation reverts to positive territory after the favourable statistical base effect wears off.