Retail inflation likely to be 5% in March driven by lower sequential prices

Indian retail inflation: The tug-of-war between moderating core inflation and persistent concerns over soaring food prices has taken center stage. Despite a commendable decline in core inflation for three consecutive months, the elevated food inflation remains a cause for apprehension.

According to Emkay Global, higher food prices pull inflation higher in March, but RBI is to stay put. “We are currently tracking March inflation at 5.0 per cent, due to lower sequential food prices. The month has so far seen edible oil prices continuing to move lower, with cereal prices also sharply lower, while pulses are higher,” the report further stated. 

Government interventions and a successful rabi sowing season have injected a dose of optimism into the outlook for food inflation. However, the precarious state of reservoir levels adds an element of uncertainty, underscoring the pivotal role a normal monsoon in the upcoming fiscal year will play in shaping the trajectory of food prices.

Looking at the bigger picture, the Reserve Bank of India's (RBI) commitment to achieving a 4 per cent Consumer Price Index (CPI) inflation forms the backdrop for monetary policy considerations. With the RBI Governor emphasising this objective, the upcoming policy meeting is expected to maintain the status quo on interest rates, reflecting a cautious approach.

Declining Core Inflation

The core inflation has witnessed a dip to 3.34 per cent owing to muted consumption demand and a global downturn in commodity prices. While deflation persists in the fuel and light category, recent policy moves, such as further reductions in LPG prices, are anticipated to prolong this trend. 

“Core inflation declines to series low; to stay benign going ahead Core inflation (ex-food, fuel, intoxicants) declined to 3.39 per cent YoY, aided by a favourable base effect. This is the lowest YoY print for the current series (since Jan-12), but prices rose in the month, at the second-highest rate since Oct-23,” Emkay Global said in its report. 

The government's efforts to cool food prices through initiatives like the Open Market Sale Scheme (OMSS) and export restrictions.

In forecasting terms, the outlook for FY24 is at an average of 5.4 per cent, with Q4 likely to report inflation at 5.1 per cent. Eyes then turn to FY25, with a 4.8 per cent average inflation projection.