India's annual inflation rate dropped to 5.22% in December, marking a second consecutive month of decline and falling just below analysts' expectations. Food price inflation also eased, signaling a potential turning point in the country's economic outlook.
India's inflation declined for a second consecutive month year-on-year, coming in just below expectations at 5.22% in December. Analysts polled by Reuters had forecast a 5.30% reading. This marked the slowest pace of growth in prices since August 2024. \Annual growth in food prices, a key metric, eased to 8.39% in December from 9.04% in November.
The Ministry of Statistics and Programme Implementation (MoSPI) noted a 'significant decline' in inflation in vegetables, sugar, cereals, and confectionary, among others. Overall inflation for vegetables slipped to 26.56% in December, a step down from November's 29.33% but a considerable drop compared with the October print of 42.18%. Despite this, prices for peas, potatoes, and garlic observed the three highest year-on-year hikes last month. \Agriculture is a major component of India's GDP, and analysts previously wrote that pressures in the food sector were likely to linger in the fiscal third quarter before starting to ease in the fourth one. This will be due to a seasonal correction in vegetable prices and monsoon harvest arrivals, as well as a likely good output for winter crops and adequate cereal buffer stocks. \India's economy expanded by just 5.4% in its second fiscal quarter ending September, well below estimates by economists and close to a two-year low. 'In terms of the policy implications, today's data – combined with a slowing economy and the change of leadership at the RBI to a seemingly less hawkish direction – suggest that the central bank will kick off the easing cycle at the next MPC meeting in February. We are forecasting a 25bp cut to the repo rate, to 6.25%', said Harry Chambers, assistant economist at Capital Economics, in a Monday note circulated after the data release. \However, the recent depreciation of the Indian Rupee to a record low of 86.58 against the dollar could force the RBI to keep rates elevated in its bid to support the currency. The RBI held rates at 6.5% in its last monetary policy meeting in December in a split decision. Bank of America analysts said earlier this month that India's GDP was expected to recover in 2025, but noted that 'the strength and rally of the recovery seems uncertain for now'. The bank sees areas such as agricultural production, fuel consumption, core sector recovery, and air traffic as likely to stay strong, while credit growth, fiscal, and consumption indicators to remain soft. In November, BofA had downgraded India's GDP forecast for fiscal year ending March 2025 to 6.5% from 6.8% — lower than the RBI's forecast of 6.6%
INFLATION FOOD PRICES RBI ECONOMY GDP
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