Despite high food prices, retail inflation based on Consumer Price Index (CPI) declined to a 10-month low of 4.85 per cent in March as against 5.1 per cent in February, data released by National Statistical Office (NSO) on Friday showed. Food prices are expected to remain volatile in the coming months which could impact the headline number.

Meanwhile, industrial growth based on the Index of Industrial Production rose to a four-month high in February, to 5.7 per cent, against 4.1 per cent in January. Experts believe the low base is expected to help growth in March, which could be about 5 percent or even more.

Retail Inflation

Data showed that prices of vegetables, pulses, eggs and spices were double-digit during March. Though cereal prices softened slightly, they were still in the higher single digits. Experts believe the projected heatwave will impact food prices. According to Swati Arora, an Economist with HDFC Bank, food inflation is expected to remain high with the onset of the summer season. That said, expectations of heatwave could impart upside risk to domestic food inflation (led largely by vegetable and fruit prices). “We find that a 10 per cent increase in vegetable prices leads to an increase in headline inflation by around 60 bps,” she said.

Adding to this, Upasna Bhardwaj, Chief Economist with Kotak Mahindra Bank, said, “While core inflation continues to moderate, we remain wary of the heatwaves, which could keep food inflation elevated and volatile in the summer months.” Both Arora and Bhardwaj do not see any change in the stance of the Monetary Policy Committee (MPC).

Arora expects CPI inflation to average around 5.1-5.2 per cent in Q1 FY25, ease below 4 per cent in Q2, and thereafter remain in the range of 4.5-5 per cent in H2 FY25. Bhardwaj said, “We expect the MPC to remain on a wait-and-watch mode until H1 FY25, with possible easing likely towards the latter part of FY25 depending on the evolution of monsoons, crude oil prices, and timing of Fed’s rate easing cycle.”

Industrial Growth

Overall performance of the industry was relatively better. While consumer durables grew 12.3 per cent, non-durable declined by 3.8 per cent. Aditi Nayar, Chief Economist with ICRA, said that the year-on-year performance of most available high-frequency indicators deteriorated in March 2024 vs. February 2024, such as Coal India’s output and steel consumption, indicating that growth in economic activity is likely to have softened in the month. “Based on the available high frequency data for March 2024, ICRA anticipates the YoY IIP growth to print at 4.5-5.5 per cent in that month, aided by a low base (1.9 per cent in March 2023),” she said.