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India’s March retail inflation eases to five-month low

By News Desk
April 14, 2024
This image shows a crowded place in India. — AFP/File
This image shows a crowded place in India. — AFP/File

NEW DELHI: India's annual retail inflation rate eased in March to a five-month low helped by a drop in fuel prices, government data showed, but economists say a rate cut by the central bank is still some months away as food prices remain sticky.

Annual retail inflation in March was 4.85 percent, lower than 5.09 percent in February, and below the 4.91 percent forecast by a Reuters poll of 50 economists.

Food inflation, which accounts for nearly half of the overall consumer price basket, rose 8.52 percent in March, compared with a 8.66 percent rise in February. Fuel prices fell 3.2% year-on-year, compared with a 0.77 percent fall in February.

Indian state fuel retailers last month cut petrol and diesel prices, the first change in about two years.

Vegetable prices rose 28.3 percent on year, while prices of pulses increased nearly 17.7 percent, eggs were up 10.3 percent year-on-year.

Core inflation, which strips out food and energy prices, was estimated to be stable at 3.3 percent-3.4 percent in March, as compared with 3.3 percent-3.37 percent in February, according to two economists. The Indian government does not release core inflation figures.

Volatile food prices have been a key challenge for the government and the central bank, which kept its interest rates unchanged for the seventh consecutive meeting last week and has said it will focus on bringing inflation down to 4 percent.

An impending heatwave may worsen the seasonal uptick in prices of perishables, heightening the significance of a favourable monsoon in 2024 to keep food inflation in check, ICRA economist Aditi Nayar said.

Lower retail inflation could help Prime Minister Narendra Modi during two months of national polls starting from April 19, in which he is seeking a third consecutive term. To contain food prices Modi's government has kept a ban on exports of wheat, rice and onions.

"At best, we foresee 50 bps of rate cuts from the monetary policy committee in second half of 2024/25," Nayar said. India's 2024/25 fiscal year started from April 1.

IDFC First Bank economist Gaura Sengupta said: "We expect the RBI rate cut cycle to start from August at the earliest.

"This is contingent on the Fed rate cut cycle starting from June/July. In case the Fed rate cut cycle gets delayed due to adverse U.S. inflation prints, the RBI rate cut cycle could get delayed."

India's economic growth of 8.4 percent in the December quarter gives the central bank more time to focus bringing down inflation to 4 percent on a sustainable basis, economists said.

The inflation print has been largely in line with market expectations and is unlikely to be a big moving factor in central bank's reaction function, said Madhavi Arora, an economist at Emkay Global.

Meanwhile, India's industrial output grew at the fastest annual rate in four months in February, increasing 5.7 percent compared with the same month last year, government data showed.

Economists polled by Reuters had estimated year-on-year growth of 6 percent in February. Annual industrial output growth for January was revised to 4.1 percent from 3.8 percent.

Manufacturing output in February rose 5 percent year on year, slower than the 5.9 percent rise posted in the same month last year.

Electricity generation in February was up 7.5 percent, against 8.2 percent growth in the same month a year ago. However, mining activity increased, expanding by 8 percent versus a 4.8 percent rise a year earlier.

Production of infrastructure goods grew 8.5 percent year on year as against 9 percent growth in the same month last year. Capital goods expanded by 1.2 percent versus an 11 percent increase a year ago.

Output of consumer durables, such as automobiles, fridges and washing machines, rose 12.3 percent in February, compared with an annual contraction of 4.1 percent in the same month last year.

Consumer non-durables, contracted 3.8 percent year on year against 12.5 percent growth recorded in the same month last year.

Industrial output in the first 11 months of the fiscal year, which started in April 2023, was up 5.9 percent, against a 5.6 percent rise in the same period a year earlier.

Output was in line with expectations, said Aditi Nayar, an economist at ICRA, adding that high-frequency indicators suggest softening economic activity in March may lead to an annual industrial output rise of 4.5 percent-5.5 percent.