Retail inflation eases to 5.72% in December

After a continuous rise for over a year, India observed a fall in CPI inflation rate to a low of 5.72% in December 2022. The inflation numbers are recorded to be within the Reserve Bank of India’s tolerance band of 2-6% for a second straight month.

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The year 2022 ended with some relief as the rate of inflation came down to a year-low in December, as per data released by Ministry of Statistics and Programme Implementation (MOSPI) on Thursday.

Staying within the Reserve Bank of India’s (RBI) comfort range of 2-6%, the Consumer Price Index (CPI) based inflation rate eased to 5.72% in December, which was recorded at 5.88% in November and 6.77% in October 2022.

According to the government’s mandate, RBI needs to maintain retail inflation at 4% with a margin of 2% on either side for a five-year period that will end in March 2026.

Food inflation, which is around 40% of the inflation basket fell to 4.19% in December as compared to 4.67% in November. Fall in food prices, particularly in vegetables were key in keeping inflation within the tolerance range.

Prices of spices continued to remain on the higher side rising to 20.35% in December. Meanwhile, footwear prices surged to 11.47%, fuel and light to 10.97% and milk & products inflation remained at 8.51%.

Source: mospi.gov.in, values in %

Aditi Nayar, Chief Economist, ICRA stated, “We expect the core inflation to remain elevated in Q4 FY 2023, given the continued pass-through of higher input costs by producers and sustained robust demand for services. The CPI inflation for January 2023 may print at 5.8-6.0%, slightly higher than the levels seen in December 2022, given the stickiness in core inflation and an unsupportive base for food inflation.

The Ecowrap report by SBI Research predicts that India’s retail inflation rate will stay below the RBI’s comfort zone of 6% and ease further to 5% by March 2023. “Against the evolving landscape, we see little incentive for further (repo) rate hike, with synchronised past actions on rate front yet to show the full impact,” the report added.