Retail Inflation Drops to 5.22%, Hits Lowest Point in Four Months

India’s retail inflation fell to a four-month low of 5.22% in December 2024, providing relief from persistent price hikes and raising hopes of a potential rate cut by the Reserve Bank of India (RBI). The decline was driven by a significant slowdown in the pace of food price inflation, particularly in vegetables, according to data released by the Ministry of Statistics and Programme Implementation on Monday.

The Consumer Price Index (CPI)-based inflation rate in the food and beverage category eased to 7.69% year-on-year in December, compared to 8.2% in November. Notably, vegetable price inflation dropped to 26.56%, down from 29.33% in the previous month.

Inflation Still Above RBI’s Comfort Zone

Despite the improvement, retail inflation remains above the RBI’s target of 4%, which allows a deviation of two percentage points on either side. Food inflation, a major contributor to household expenses, continues to be a challenge for monetary policy.

The central bank maintained its benchmark interest rate at 6.5% during its December meeting, marking 18 months of unchanged rates following a cumulative 250-basis-point hike between May 2022 and February 2023.

“The lower retail inflation print is encouraging. If prices cool further and stay range-bound, it could be less challenging for the central bank to lower the key interest rate,” said Abhishek Agrawal, an analyst with Comtrade.

Key Drivers of Inflation

Cereal price inflation slowed to 6.51% in December from 6.9% in November, while inflation in pulses declined to 3.83% from 5.4% during the same period. Weather-related shocks in 2024 had led to price surges in cereals, pulses, and vegetables, which significantly contributed to inflationary pressures.

Economic Growth Challenges

India’s economy, Asia’s third-largest, is projected to grow at its slowest pace in four years during the 2024-25 fiscal year, weighed down by sluggish manufacturing and muted exports. Analysts believe this will increase pressure on the RBI to cut rates to stimulate credit and investment.

Former RBI Governor Shaktikanta Das emphasized the importance of striking a balance between inflation control and economic growth. “Achieving the right balance between inflation and growth is the most important task for the Reserve Bank of India,” Das said after the recent monetary policy meeting.

A rate cut in the near future could help revive business investments and boost economic growth, offering much-needed momentum to India’s economy in the face of global headwinds.

Sources By Agencies

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