India's retail inflation may continue to ease in February, led by softer prices of food and a favourable base.
A panel of economists polled by Bloomberg estimated Consumer Price Index-based inflation at 5.05% in February, compared with 5.10% in January. Inflation has been within the central bank's tolerance band of 4%(+/-2%) for three straight months since September.
Kaushik Das, chief economist at Deutsche Bank, forecasts CPI inflation at 5.07% in February, indicating a small increase of 0.14% month-on-month, in contrast to a small fall in January. Despite the likely rise in momentum, inflation is likely to stay steady at about 5.1%, led by a favorable base and continued softness in vegetable prices owing to positive seasonality.
Rahul Bajoria, chief economist at Barclays, expects a modest uptick in inflation. "We forecast CPI inflation rose slightly, to 5.30%, in February, with a modest sequential rise in food and core prices," he said.
Price pressures largely remain in check, and food prices are coming off gradually. This should keep the RBI on the sidelines for longer, with no urgency to cut rates given robust growth.Rahul Bajoria, Chief Economist, Barclays
Food Inflation To Remain Range-boundÂ
For February, Das forecasts food and beverage prices to be down -0.10% month-on-month, coming in at 7.50% year-on-year, compared to 7.60% last month. Bajoria, who forecasts food inflation at 8% because of the base effect, said that the print is likely to continue to keep the central bank cautious.
Vegetables: The correction in vegetable prices seen over the past two months drew to a close, with the vegetables CPI steady m/m. On a y/y basis, it means vegetable inflation likely remained elevated at 30.2% (Jan: 27.0%), partly due to a low base. However, even as onion, potato and tomato prices are falling, prices of vegetables with lower weights in the basket (eg, garlic, cabbage) are surging.
Cereals: Disinflation in cereals is likely to continue gradually. Prices for rice and wheat edged higher in February, but on a year-on-year basis, inflation likely remained steady at 7.8%. While still elevated, the momentum of cereal inflation has been easing since December 2023.
Sugar, spices and pulses: All three remain at elevated rates year-on-year, but the monthly declines should offer some comfort, said Bajoria.
As far as March is concerned, the food price trend will partly depend on whether a large part of the country is affected by severe heatwaves or not, particularly in the second half of this month, Das cautioned. "Severe heatwaves could push up vegetable prices more than what we have factored in at this stage, which in turn may potentially lead to CPI averaging around 5.20% in January–March 2024," he said.
The RBI forecasts CPI inflation at 5% for the quarter.
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