India’s Inflation At Three-Month Low Gives RBI Some Respite

(Bloomberg) -- India's inflation eased to a three-month low in January as food prices moderated, providing some relief to rate-setters nervous about price shocks spilling over to other segments of the economy. 

The consumer price index rose 5.10% last month from a year earlier, statistics ministry data showed Monday. That's almost in line with the 5.0% median estimate in a Bloomberg survey of economists and compares with a 5.69% print in December.

The reading comes as fresh availability of vegetables and pulses cooled food prices. Food inflation, that makes up about half of the consumer price basket, moderated to 8.30%, from 9.53% in December. 

Food costs, driven primarily by uncertain weather, imparts considerable volatility in the consumer price index, which the central bank aims to keep anchored at 4%. Excluding volatile food and fuel costs, the core measure of inflation, slowed further to 3.61%, the lowest since 2019. 

High price gains prompted the monetary authority to stick to its hawkish policy stance last week, indicating it's in no rush to cut interest rates until later in the year. The RBI will also take its cue from the US Federal Reserve, which remains wary of cutting rates too soon.

“Uncertainties in food inflation outlook should keep RBI cautious in the near term, with much of action by the central bank expected on the liquidity front,” Upasna Bhardwaj, chief economist at Kotak Mahindra Bank Ltd said by phone. The supply side interventions should continue to provide respite in food prices, she said.

Housing prices rose 3.2% in January from a year earlier, while clothing and footwear costs climbed 3.37%. Fuel and electricity prices fell 0.6%. 

What Bloomberg Economics Says

We don't see the Reserve Bank of India letting go of its hawkish stance even as consumer inflation declined sharply for the first time in three months in January.

— Abhishek Gupta, India economist

For the full report, click here 

Cooling inflation will help Prime Minister Narendra Modi's government seeking a third term in the nationwide elections due in the next few months. To tame prices, his administration has curbed exports of wheat, sugar and most rice varieties, and cracked down on hoarding. India has also extended low edible oil import duties for another year.

Separately, the government also released figures showing factory output grew to 3.8% from 2.40% in November.

(Updated with economists quotes, chart, details)

More stories like this are available on bloomberg.com

©2024 Bloomberg L.P.