Retail inflation based on Consumer Price Index (CPI) is likely to have moderated in December in the range of 5.1 per cent to 5.3 per cent. The Statistic Ministry will release the number on Monday.

Retail inflation was at 5.5 per cent in November.

A major factor in the possible moderation in inflation could be the lower price of vegetables.

A businessline analysis of 14 seasonal vegetable prices at agricultural market yards (mandis) showed that all-India daily average prices have dropped 1-71 per cent on January 3 from year-ago levels in the case of radish, coriander, cauliflower, brinjal, pumpkin, tomato, bottle gourd, okra, carrot and cabbage. Even though retail prices are higher on a year-on-year basis, the rate of rise is lower than November which indicates some moderation in headline inflation.

While vegetables have a weight of 7.46 per cent, food and beverage have over 54.18 per cent weigth in CPI.

Greens back on track

A Barclays report, authored by Aastha Gudwani, India Chief Economist, said vegetable price correction is now underway. Tomato, onion and potato prices are down 47 per cent, 26 per cent and 11 per cent from their recent peaks, respectively. In December alone, retail vegetable prices fell 7.4 per cent on a month-on-month basis.

“We, accordingly, see December CPI inflation at 5.23 per cent, down from 5.48 per cent,” the report said, while estimating that 15bp (basis points) of the 25bp drop in inflation comes from food, with food price inflation likely to moderate to 7.9 per cent. It was 8.2 per cent in November. While vegetable price correction is likely to be responsible for the lion’s share of the decline, the report also predicted sequential drops in the prices of food grains, meat, fish and fruits, leading to a 1 per cent decline in food prices.

Echoing the sentiment, Paras Jasrai, Senior Analyst at India Ratings & Research said prices of potato have gone up but there is a decline in onion prices and a lower rise in tomato prices. “This would help the retail inflation move down closer to the 5-per-cent mark in December 2024,” he said.

Highest average in a decade

However, Anil Sood, Founder of the Institute for Advanced Studies in Complex Choices, said that the monthly average vegetable price inflation of 26.9 per cent in 2024 is the highest in a decade. It is, therefore, likely that vegetable price inflation in December and January come at a higher level than earlier, resulting in a higher headline inflation.

Even the headline number in December is lower than that in November, but if it is more than 5 per cent, this would be four successive months of higher inflation than the median rate (4 per cent) of the targeted range (2-6 per cent). Still, the expectation is that the Monetary Policy Committee (MPC), scheduled to meet next month for the first time under Chairmanship of new RBI Governor Sanjay Malhotra, is likely to lower policy repo rate after May 22, 2020 and revision after February 8, 2023.

Revision in policy interest rate is also expected as economic growth rate projection for FY25 has been cut to 6.4 per cent from 6.5-7 per cent. There is also concern around consumption not picking up.