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Celebration of Lohri, Pongal, Makar Villaku, Uttaryan, Makar Sankranti, and Bihu to mark the arrival of new crops is also expected to bring good news on the retail inflation infront.
Though the arrival of new crops is likely to cool the retail inflation based on Consumer Price Index (CPI) from its peak, low rabi sowing and Read Sea crisis pose risks, say economists.
On Friday, the Ministry of Statistics and Programme Implementation said that retail inflation in December rose to 5.7 per cent against 5.5 per cent in November. Rise in the prices of vegetables, fruits, and pulses along with sustained high prices of cereals were responsible for rise in headline inflation to a four month high.
The consensus is that rise in the prices of vegetables and fruits are seasonal and they are coming down now.
“The peak of inflation may be beyond us, and we see Q4 FY24 inflation to be averaging at around 5 per cent compared to an average of 5.5 per cent in the first nine months,” Indranil Pan, Chief Economist with Yes Bank said.
Echoing these views, Dipti Deshpande, Principal Economist withCRISIL said,” With the kharif harvest coming in and with government intervention, we expect some softening in food inflation.”
Also read: Food inflation in metros over 500 bps higher than national average
Some economists observe that favourable base effect will have a role to play in the January print.
“A favorable base effect will persist throughout Q4 FY24, helping absorb potential upward risks to price pressures to a certain extent. Moreover, the arrival of fresh crops into the market from January to March is expected to ease price pressures in the food basket. For the full fiscal year, we expect inflation to average at 5.4 per cent,” Rajni Sinha, Chief Economist with CARE said.
Apprehensions
According to Pan, uncertainty over food prices is likely to persist on account of the negative impact of El Nino. According to the latest data, rabi sowing is down by 4.7 per cent against that of last year. “The drop in pulses sowing is especially high at around 7.8 per cent,” he said. The prices of pulses prices are already ruling high.
“The projected fall in Kharif production and uncertainties around rabi sowing prospects present an upside risk to the food inflation and could further feed into the inflationary expectations. Hence, the supply-side interventions by the government become crucial at this juncture,” Sinha said.
Also read: Inflation remains a bugbear
According to Deshpande, lower rabi sowing is a matter of concern. Besides, oil prices remain an unknown which could play spoilsport if the West Asia conflict escalates.
Economists also said that not just inflation rate but inflationary expectation will be key discussion points during the next meeting of the the Monetary Policy Committee (MPC).
“We expect the Reserve Bank of India (RBI) to remain vigilant and maintain the policy rate and stance in the upcoming policy review in February. On an average, we expect CPI inflation to average 5.5 per cent in the ongoing fiscal and see some further softening in the next (fiscal),” Deshpande said.
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