Inflation eases in November as new produce cools food price rise

New Delhi: India’s headline retail inflation eased to 5.48 per cent in November after surging to a 14-month high of 6.21 per cent in October, as rise in vegetable prices softened due to the arrival of new produce, government data showed on Thursday.

Food inflation, which makes up around half of the overall Consumer Price Index (CPI) basket, eased to 9.04 per cent in November from October’s 15-month peak of 10.87 per cent.

The November inflation print is the lowest in three months. However, it remains sharply higher than the Reserve Bank of India’s medium-term target of 4 per cent.

Analysts said that if inflation softens further in December, it will strengthen the case for the RBI’s Monetary Policy Committee to cut interest rates in its next meeting in early-February. The meeting will be chaired by new Governor Sanjay Malhotra. The RBI has not changed the policy rates for almost two years in a bid to control inflation.

"While the average for October-December quarter is expected to remain elevated, we see the winter crop arrivals to provide relief in the coming months," said Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank.

Rural consumers experienced higher uptick in prices. Food inflation in rural areas jumped to 9.1 per cent while in the urban areas it stood at 8.74 per cent in November. Overall retail inflation in urban areas stood at 4.83 per cent while in rural areas it was sharply higher at 5.95 per cent.

Prices moderated due to a bumper summer crop harvest, aided by a favourable monsoon. Adequate reservoir levels and higher minimum support prices are also seen boosting winter crop sowing and production, in turn lowering food inflation in the coming months, State Bank of India Research said in a note.

While there was some softening in the rate of inflation, food prices continued to rise. Vegetables became costlier by 29.33 per cent month-on-month in November. Fruit inflation softened to 7.68 per cent in November from 8.43 per cent in the previous month.

“We expect softening in food price inflation to continue as winters set in. We expect inflation may fall towards 5.2-5.3 per cent for December 2024. With inflation expected to soften going ahead, it opens up space for RBI for policy easing to support growth,” said Akhil Mittal, Senior Fund Manager at Tata Asset Management.

“A higher base effect of pulses, fruits, vegetables and spices inflation will be helpful in further decline in inflation in December 2024, which we expect to be around 5 per cent. However, edible oils and personal care and effects may pose some challenges,” said Paras Jasrai, Senior Economic Analyst at India Ratings.

Meanwhile, industrial production gained some pace indicating improvements in macro-economic data in the coming months. The Index of Industrial Production (IIP), rose to 3.5 per cent in October 2024, up from 3.1 per cent in the previous month, led by a 4.1 per cent expansion in manufacturing production.