India's Retail Inflation

India's retail inflation eased to a four-month low of 5.2% in December, primarily due to a decline in food prices.

Key Economic Insights

• Economists are divided on a possible rate cut in February, citing the need to monitor geopolitical developments.
• The rupee depreciation has led to concerns about higher imported inflation, especially for oil products.
• The rupee fell below 86 per dollar, marking a significant depreciation.
• Average inflation in 2024 was 5%, lower than the 5.7% recorded in 2023.
• Rural inflation was higher at 5.8% compared to 4.6% in urban areas.

Monetary Policy

The Reserve Bank's Monetary Policy Committee (MPC) will meet from February 5-7. The policy rate has been unchanged at 6.5% for 11 consecutive times.

• Aditi Nayar emphasized that the significant decline in vegetable prices might lead some MPC members to consider an early rate cut.
• Paras Jasrai noted that fiscal arithmetic could influence monetary policy actions.

Inflation Details

• Core inflation, excluding food and fuel, was at a three-month low of 3.6% in December.
• Food inflation fell to a four-month low of 8.4% in December from 9% in November.
• Vegetable prices increased by 26.6% in December but were at a four-month low overall.
• Inflation was higher in 10 out of 22 states and UTs compared to the national average, with Chhattisgarh recording the highest at 7.6%.

Future Projections

• The RBI projects inflation to be at 4.5% for the January-March quarter.