Indian Inflation Drops To Five-Month Low Following Fuel Price Drop

(CTN News) – Government data showed India’s annual retail inflation rate eased in March to a five-month low, but economists say a rate cut by the central bank is still some months away as food prices remain high.

Annual retail inflation decreased to 4.85 percent in March from 5.09 percent in February, and below the 4.91 percent forecast by 50 economists polled by Reuters.

Food inflation increased 8.52 percent in March, compared to an 8.66 percent increase in February. This represents nearly half of the overall consumer price basket. Fuel prices declined 3.2 percent year-over-year, compared to a 0.77 percent decline in February.

Last month, Indian state-owned fuel retailers reduced petrol and diesel prices for the first time in nearly two years.

It is expected that vegetable prices will rise by 28.3 percent over the next year, while pulses will rise by nearly 17.7 percent, and eggs will rise by 10.3 percent.

Several economists believe that core inflation, which excludes food and energy prices, was stable in March at 3.3pc-3.4pc, compared to 3.3pc-3.37pc in February. Core inflation figures are not available from the Indian government.

Keeping interest rates unchanged for the seventh consecutive meeting last week, the central bank announced it would focus on bringing inflation below 4 percent. It has cited volatile food prices as a key challenge.

Heatwaves could worsen food prices seasonal increase in 2024, making a regular monsoon even more vital to containing food inflation. This is according to ICRA economist Aditi Nayar.

India braces for heatwaves with a potential impact on inflation and elections

A lower level of retail inflation could benefit Prime Minister Narendra Modi during two months of national elections commencing on April 19, in which he is seeking a third consecutive term in office. Modi’s government has prohibited wheat, rice, and onions from export to control food prices.

The monetary policy committee is likely to cut rates by 50 basis points in the second half of 2024/25 at the very best,” Nayar stated. From April 1, 2024/25 is India’s fiscal year.

IDFC First Bank economist Gaura Sengupta said: “We expect the RBI to begin cutting rates by August at the earliest.”

From June/July, the Fed is expected to cut interest rates. If the Fed’s rate-cutting cycle is delayed due to adverse readings in the United States, the RBI’s rate-cutting cycle may be delayed as well.

According to economists, India’s 8.4 percent economic growth in the fourth quarter gives the central bank more time to reduce inflation to 4 percent on a sustainable basis.

According to Madhavi Arora, an economist at Emkay Global, the inflation print has been in line with market expectations and is unlikely to have a significant impact on the central bank’s reaction function.

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