Government will make retail inflation data, based on Consumer Price Index (CPI), at 5.30 pm on Monday. The expectation is, that it will come down from 5.69 per cent but, be above 5 per cent.

One reason for lower inflation, could be slowing food price rises and favourable base effects. Though data released by the government, does not mention core inflation, (deducting inflation of volatile products such as food and fuel from headline inflation). Economists’ calculation is around 3.7 per cent for inflation.  Core inflation is considered a more reliable trend to gauge general price movement.

The targeted inflation range, based on an agreement between the Government and the Reserve Bank of India, is 2-6 per cent with 4 per cent as median rate. The Monetary Policy Committee (MPC), led by the RBI Governor, reviews policy repo rate, based on latest CPI reading and its positioning according to targeted inflation range. Earlier this month, MPC held its repo rate at 6.5 per cent for a sixth consecutive meeting on Feb. 8, highlighting “large and repetitive food price shocks” as one of the biggest risks to the ongoing disinflation trend.

While announcing MPC resolution, RBI Governor, Shaktikanta Das said, that headline inflation moderated to an average of 5.5 per cent during April-December 2023 from 6.7 per cent during 2022-23. Food price inflation, however, continued to impart considerable volatility to the inflation trajectory. In contrast, the deflation in CPI fuel deepened and core inflation (CPI inflation excluding food and fuel), moderated to a four-year low of 3.8 per cent in December. The decline in core inflation, continued to be broad based, with inflation remaining steady or softening across its constituent groups and sub-groups.

According to Das, the inflation trajectory, going forward, would be shaped by the outlook on food inflation, about which there is considerable uncertainty. Adverse weather events, remain the primary risk with implications for the rabi crop. Increasing geopolitical tensions are leading to supply chain disruptions and price volatility in key commodities, particularly crude oil. On the positive side, the progress in rabi sowing, has been satisfactory and augurs well for the season. “Prices of key vegetables, especially onions and tomatoes, are registering seasonal price correction. Taking into account these factors, CPI inflation is projected at 5.4 per cent for the current year (2023-24) with Q4 at 5 per cent,” he said.

The MPC resolution also highlighted that headline inflation has remained high and has seen considerable volatility, moving in a range of 4.3 per cent to 7.4 per cent during the current financial year. Recurring food price shocks could interrupt the ongoing disinflation process, with risks that it could lead to de-anchoring of inflation expectations and generalisation of price pressures. Adding to these, are the renewed flash points on the geo-political front, including supply chain disruptions. Importantly, the CPI inflation target of 4 per cent is yet to be reached. “Monetary policy, in the midst of these lingering uncertainties, has to remain vigilant, to ensure that we successfully navigate the last mile of disinflation. Stable and low inflation at 4 per cent, will provide the necessary bedrock for sustainable economic growth,” the resolution said.