Economists see FY25 CPI inflation at 4.5%

Economists see FY25 CPI inflation at 4.5%

Informist, Tuesday, Apr 16, 2024

By Shubham Rana

NEW DELHI – India's headline CPI inflation is expected to cool further to 4.5% in 2024-25 (Apr-Mar) from a four-year low of 5.4% in 2023-24, according to an Informist poll of 17 economists. Inflation is likely to ease on the back of reduction in food inflation and well-behaved core inflation, the economists said.

India's retail CPI inflation has been moderating steadily since touching a 15-month high of 7.44% in July 2023. It fell to a 10-month low of 4.85% in March, taking the average for 2023-24 to 5.4%, in line with the Reserve Bank of India's projection in February.

The projection by the economists is in line with the RBI’s forecast. The central bank has projected that CPI inflation will average 4.5% in 2024-25, with prints of 4.9% in Apr-Jun, 3.8% in Jul-Sep, 4.6% in Oct-Dec, and 4.5% in Jan-Mar.

The economists polled expect retail inflation to remain above the central bank’s medium-term target of 4%, except for Jul-Sep, similar to the RBI’s projections.

They see food inflation moderating to 5-6% this year from 7.5% in 2023-24. A lot will depend on how the southwest monsoon pans out. The India Meteorological Department has forecast an above normal monsoon this year as La Nina conditions are set to develop in the second half of the season. According to the agency, rainfall in Jun-Sep is likely to be 106% of the long period average with a model error of plus or minus 5%.

This bodes well for food inflation, the economists said. But the weather bureau has also forecast more heat wave days than usual for Apr-Jun. This, the economists said, could lead to a rise in prices of perishable commodities like vegetables.

"Heat waves could impart upside risk to domestic food inflation (led largely by higher vegetable and fruit prices due to hotter-than-normal temperatures)," HDFC Bank said in a report last week. According to the bank, a 10% increase in vegetable prices will translate to an increase of around 60 basis points in headline inflation.

"Sustained rise in commodity prices and escalation in geopolitical tensions could disrupt global supply chains, leading to elevated input costs (including higher crude oil prices) and an eventual pass through to retail inflation," the bank's report said.

Core inflation, which excludes food and fuel items, moderated sharply in 2023-24, averaging 4.4%, against 6.1% the previous year. Core inflation was at 3.3% in March, the lowest print in the current CPI series, which began in January 2012.

The economists expect core inflation to stay around the 4% mark this year as well. It is seen muted in Apr-Sep and is expected to rise in Oct-Mar because of an unfavourable base effect, they said. Core inflation can also rise if manufacturing input costs increase on the back of higher global commodity prices, the economists said.

With inflation expected to stay above the RBI's target of 4% this year, the central bank will be in no hurry to lower interest rates. Economists now see a shallow rate-cut cycle of 50-75 bps, starting October. Morgan Stanley today said it does not see any rate cut in India in 2024-25.

Following is a summary of the poll on CPI inflation in 2024-25, with details of estimates by respondents, in ascending order:

Range of expectations: 4.3-4.8%

Mean: 4.6%

Median: 4.5%

Mode: 4.5%

Nomura 4.3%
Barclays 4.5%
ICICI Bank 4.5%
IDFC FIRST Bank 4.5%
Kotak Mahindra Bank 4.5%
Morgan Stanley 4.5%
Motilal Oswal Financial Services 4.5%
QuantEco Research 4.5%
Emkay Global Financial Services 4.6%
HDFC Bank 4.6%
IDBI Bank 4.7%
CareEdge 4.8%
Equirus Securities 4.8%
India Ratings and Research 4.8%
Nirmal Bang Institutional Equities 4.8%
Bank of Baroda 4.5-5.0%


Edited by Rajeev Pai

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