Retail inflation eases to four-month low of 5.22% in December

The Consumer Price Index (CPI) inflation has declined sharply after surging to a 14-month high of 6.21% in October. It stood at 5.48% in November.

New Delhi: India’s retail inflation eased to a four-month low of 5.22 per cent in December, helped by a moderation in food price rise - especially vegetables and fruits - as supply improved due to good monsoon, official data showed on Monday.

The Consumer Price Index (CPI) inflation has declined sharply after surging to a 14-month high of 6.21 per cent in October. It stood at 5.48 per cent in November.

The price rise was sharper in rural India. In December, CPI rural inflation declined to 5.76 per cent from 5.95 per cent in November while in urban CPI inflation eased to 4.58 per cent from 4.89 per cent, as per data released by the Ministry of Statistics & Programme Implementation.

Food inflation, which makes up around half of the overall CPI basket, eased to 8.39 per cent in December from 9.04 per cent in the previous month. It was at 10.87 per cent in October.

Despite the softening, food inflation, which has a 39.1 per cent weight in the CPI basket, remains elevated. So far this fiscal, food inflation has averaged 8.4 per cent, higher than 7.5 per cent for the whole of fiscal 2024.

“Elevated food inflation has been the major hurdle for rate cuts as it keeps the headline inflation high and household inflation expectations elevated,” said Dipti Deshpande, Principal Economist at Crisil.

Core inflation declined to three-month low of 3.6 per cent in December, mainly due to lower gold and silver prices. The sequential easing in core inflation indicates weaker domestic demand.

The policy trade-offs are becoming acute with a tricky and small window of conventional rate cuts as global dynamics turn more fluid. Besides, mounting FX pressures and increasing cost of FX intervention will need to be weighed before deeply cutting rates ahead, Emkay Global Financial Services said in a note.

“As of now, we do not rule out a cut in February 2025, but would be more comfortable taking a firm call closer to the policy window, especially with a new Governor and Monetary Policy Committee in place. We also keep a watch on unconventional easing measures, specifically the gradual easing of regulatory lending norms ahead, to revive the waning credit offtake,” it said.

“With RBI’s recent adjustment in its inflation forecast for the current fiscal year upward to 4.8 per cent from 4.5 per cent, alongside a downward revision to India’s GDP growth forecast, the potential for rate cut may still be on the table, but will highly depend on how these macroeconomic indicators evolve in the near term,” said Raghvendra Nath, MD, Ladderup Wealth Management.

Net direct tax kitty swells by 16 per cent

The net direct tax collection grew 15.88 per cent to about Rs 16.90 lakh crore so far this fiscal according to government data released on Monday. As per the data by the Central Board of Direct Taxes (CBDT) mop-up from net non-corporate taxes which include mainly personal income tax stood at over Rs 8.74 lakh crore.