India’s Consumer Price Index (CPI) inflation is expected to moderate to 5 per cent in December 2024 from 5.5 per cent in November, according to a report by Bank of Baroda.

The report highlighted a positive outlook on inflation, driven by significant corrections in the prices of key vegetables such as tomatoes, onions, and potatoes.

“We expect CPI to moderate to 5 per cent in Dec’24 from 5.5 per cent in Nov’24. The outlook on inflation looks positive as prices of tomato, onion and potato witnessing even further correction” the report said.

The report noted that prices of these vegetables have declined sharply in early January 2025, with reductions ranging between 9.8 per cent and 22.7 per cent during the first five days of the month.

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This trend is attributed to improved mandi arrivals, which are expected to further ease vegetable prices in the coming months.

Global factors also appear favourable, with stabilised edible oil prices likely to see some correction. Domestically, abundant supply is expected to keep inflation in cereals and pulses under control.

However, the report cautioned that inflationary pressures could arise from the depreciation of the domestic currency, which may lead to higher imported inflation.

The Bank of Baroda Economic Index (BoB ECI) showed a sequential decline of 0.5 per cent in December 2024, reflecting easing inflationary trends. On a year-on-year basis, the index witnessed only a marginal correction due to the base effect.

Sequentially, the report observed a notable decline in vegetable prices, particularly tomatoes, onions, and potatoes, which is expected to contribute significantly to the moderation in CPI inflation for December.

Overall, the report presented a favourable outlook on inflation, supported by stabilising food prices and global commodity trends. However, it emphasises the need to monitor external factors, such as exchange rate fluctuations, which could pose risks to the inflation trajectory.

It also added “we see a sharp correction in prices of vegetables, i.e. tomato, onion and potato. This is likely to get reflected in the CPI print for Dec’24”.The moderation in CPI inflation could provide some relief to policymakers and consumers, signalling an easing of price pressures in the economy.