Consumer Price Inflation in India Likely Falls to 5.3% in December

By Vivek Mishra

BENGALURU (Reuters) – Consumer price inflation in India likely fell to 5.3% in December, with moderating food prices bolstering expectations for an interest rate cut by the central bank next month amid slowing economic growth.

Food prices, which account for nearly half of the country’s consumer price index (CPI), have kept inflation elevated recently, driven largely by a sustained surge in vegetable prices, which have risen by double digits for a year.

However, food prices have started to ease due to a bumper summer crop harvest supported by favorable monsoons, raising hopes for further moderation in inflation in the coming months.

A Reuters poll conducted from January 6-9 among 43 economists showed inflation as measured by the annual change in the consumer price index decreased to 5.30% in December, down from 5.48% in November.

Estimates for the December inflation data, set to be released on January 13 at 1030 GMT, ranged from 4.50% to 5.60%.

According to Kanika Pasricha, chief economic adviser at Union Bank of India, the slow pace of easing inflation is attributed to a delayed correction in vegetable prices due to unseasonal rains in October and upward momentum seen in other food segments like edible oils and cereals, with some cooling observed in December.

Core inflation, which excludes volatile items such as food and energy and is viewed as a better indicator of domestic demand, was forecast at 3.70% in December, based on the median estimate from a smaller group of 17 economists. The Indian statistics agency does not publish core inflation data, but estimates have placed it between 3.64% and 3.70% in November.

While price rises have eased modestly, inflation is not expected to return to the central bank’s 4% medium-term target until at least the second half of 2026. A separate Reuters poll indicated that a majority of economists expect the Reserve Bank of India (RBI) to cut its key interest rate by 25 basis points to 6.25% at the policy meeting scheduled for February 5-7. This action is anticipated to support an economy that has slowed from an expected growth rate of 7-8% to just above 5% in the July-September quarter.

Teresa John, deputy head of research and an economist with Nirmal Bang Institutional Equities, stated in a note, “We continue to expect a rate cut from the RBI in February with growth likely to undershoot the RBI’s 6.6% forecast.”

In addition, wholesale price index-based inflation is expected to have surged to 2.30% last month, up from 1.89% in November, according to the survey.