India's retail inflation eases to 5.1%, industrial production at 3.8%
What's the story
Close on the heels of the General Election, India's consumer price index (CPI) or the retail inflation rate dropped to a three-month low of 5.1% in January. As reported by the Ministry of Statistics and Programme Implementation, this is a decrease from December 2023's rate of 5.69%. Experts had anticipated a 5.09% year-on-year increase in inflation figure for January 2024. The Consumer Price Index (CPI) is a monthly change in prices paid by consumers in the retail market.
Tolerable CPI
Inflation rate within RBI's tolerance band
For the fifth month in a row, the current CPI inflation rate remains within the Reserve Bank of India's (RBI) acceptable range of 2-6%. However, it has been above the RBI's medium-term target of 4% for 52 consecutive months. Inflation rates in rural and urban areas were 5.34% and 4.92%, respectively, lower than the 5.93% and 5.46% rates seen a year ago.
Contributing factors
Moderation in inflation due to cooling of food prices
The decrease in inflation can be attributed to lower food prices, with January's food inflation at 8.30% compared to December's 9.53%. Vegetable inflation slightly decreased to 27.03% from December's 27.64%, while fuel and light inflation contracted (-)0.60%, compared to (-)0.99% in the previous month. Food items which saw a month-on-month rise in inflation in January were eggs (3.5%) and cereals and products (0.8%).
Industrial production
Industrial production rises to 3.8% in December
India's industrial production rose to 3.8% in December 2023, up from November's 2.4%. The Index of Industrial Production (IIP) showed factory output growth at 5.1% in December 2022. From April to December 2023-24, IIP growth increased to 6.1%, up from 5.5% during the same period the previous year.
RBI's forecast
RBI's inflation forecast and ongoing efforts
On February 8, the RBI maintained its repo rate at 6.50% for the sixth consecutive term and kept its inflation forecast for FY24 at 5.4%. RBI Governor Shaktikanta Das cited "large and repetitive food price shocks" as a significant risk to the ongoing disinflation trend. Inflation rates for Q1FY25, Q2FY25, Q3FY25, and Q4FY25 were projected at 5%, 4%, 4.6%, and 4.7%, respectively, assuming normal monsoon conditions next year.