India: Inflation declines to lowest level since August 2024 in January
Latest reading: Inflation fell to 4.3% in January from December’s 5.2%. January’s figure was below market expectations, marked the weakest inflation rate since August 2024, and moved closer to the Reserve Bank of India’s 4.0% target, raising the probability that the Bank will continue to reduce interest rates after making its first cut since 2020 on 7 February.
Looking at a breakdown, the drop was largely due to lower price pressures for food, whose supply has been boosted recently by last year’s strong monsoon and, subsequently, what is projected to be a record harvest of kharif crops, which include staples such as pulses and rice.
The trend was unchanged, with annual average inflation remaining at December’s 4.9% in January.
Finally, consumer prices fell 0.97% from the previous month in January, a sharper drop than the 0.56% fall recorded in December. January’s result marked the weakest reading since September 2023.
Panelist insight: Goldman Sachs economists Santanu Sengupta and Arjun Varma said:
“Based on our current tracking estimates, we lower our Q1 CY25 food inflation forecast by 40bp to 5.7% yoy, and raise it slightly in Q2 owing to a heatwave warning by the Indian Meteorological Department (IMD), which may drive food prices higher.”