India’s Retail Inflation Eases to 5.22% in December: A Four-Month Low
Inflation Moderates Amid Easing Food Prices
India’s retail inflation eased to a four-month low in December, clocking 5.22%, according to data released by the Ministry of Statistics and Programme Implementation (MoSPI). This marked a decline from 5.48% in November and 5.69% in December 2023. The latest figures remain within the Reserve Bank of India’s (RBI) medium-term inflation target range of 2%-6%.
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Food Inflation: A Key Driver of Moderation
Food inflation, often a significant contributor to overall retail inflation, showed signs of cooling. It rose by 8.39% year-on-year in December, down from 9.04% in November and a peak of 10.87% in October. Seasonal declines in vegetable prices played a critical role, though categories like meat, fish, eggs, and fruits continued to experience price pressures.
On a monthly basis, inflation in food and beverages eased to 7.69% in December compared to 8.20% in the prior month. However, food prices have remained elevated for over a year, fueled by uneven monsoon rains and subsequent supply chain disruptions.
Regional Disparities in Inflation Rates
Inflation trends varied across states, with 13 out of 22 states reporting inflation rates exceeding 5% in December. States like Andhra Pradesh, Delhi, Gujarat, Himachal Pradesh, Jharkhand, Maharashtra, Rajasthan, Telangana, and West Bengal reported inflation below the national average. This regional variation highlights the localized impact of food price volatility and other economic factors.
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RBI’s Inflation Target and Monetary Policy
The Reserve Bank of India maintained the benchmark repo rate at 6.5% during its December Monetary Policy Committee (MPC) meeting, emphasizing its commitment to aligning inflation with its medium-term target. The central bank remains cautious, focusing on balancing inflation control with economic growth.
RBI revised its FY25 GDP growth forecast to 6.6%, down from 7.2%, and CPI inflation forecast to 4.8%, up from 4.5%. Persistently high food prices and weakened consumption demand contributed to this adjustment.
The Role of Interest Rates in Managing Inflation
Interest rate adjustments play a pivotal role in curbing inflation. Higher rates discourage borrowing and reduce consumer spending, thus easing inflationary pressures. While the repo rate remains unchanged since February 2023, the RBI's vigilance underscores its strategy to ensure sustainable inflation levels without stifling growth.
Conclusion: A Cautious Optimism
The moderation in retail inflation to 5.22% in December provides some respite, driven primarily by easing food prices. However, the persistence of elevated food inflation and regional disparities remain concerns. With the RBI maintaining a neutral stance, the trajectory of inflation and its broader impact on economic growth will be closely monitored in the coming months.
Also Read: India’s Trade Deficit Narrows in December