Economists said that the retail inflation based on the Consumer Price Index (CPI), in November 2023 increased to 5.55 per cent, far from the RBI’s medium-term target level of 4 per cent, driven by a surge in food and beverage inflation to 8.0 per cent in November. Experts said that while the Reserve Bank of India (RBI) will closely monitor inflation as it remains above the MPC’s long-term target of 4 per cent, the central bank will hold the interest rate steady for the next couple of meetings. “We expect the RBI to closely monitor inflation as it remains above the MPC’s long-term target of 4 per cent. In our base case, we expect CPI inflation to average 5.5 per cent this fiscal, and foresee the RBI holding interest rates steady for the remainder of this fiscal,” said Dharmakirti Joshi, Chief Economist, CRISIL.
Meanwhile, Aditi Nayar, Chief Economist, Head Research and Outreach, ICRA Ltd, said, “We expect the MPC to maintain the status quo for the next couple of policy meetings, and foresee a shallow rate cut cycle of around 50-75 bps, commencing in the August 2024 meeting.” as a spike in prices of onion led to a rather broad-based rise in food inflation, according to data released by the National Statistical Office (NSO). Though the 5.55 per cent CPI inflation is far from the RBI’s medium-term target level of 4 per cent, it is within the tolerance limit of 2-6 per cent. Here are economists’ views on the CPI inflation for the month of November 2023:
Dharmakirti Joshi, Chief Economist, CRISIL
Inflation based on the Consumer Price Index (CPI) rose to 5.6 per cent in November from 4.9 per cent in October, driven by food items, while the non-food component of the gauge provided some comfort. An adverse base-effect also provided a lift to the print. Food inflation accelerated sharply to 8.7 per cent led by double-digit inflation in vegetables, pulses and fruits. Some easing in cereals, milk and a deeper deflation in edible oils curbed the rise in food inflation. On the non-food front, fuel and light prices declined at a faster pace than in October. Core inflation eased a touch to 4.1 per cent. The moderation in core inflation reflects lower input cost pressures on producers, which has reduced the need to raise retail prices. We expect the RBI to closely monitor inflation as it remains above the MPC’s long-term target of 4 per cent. In our base case, we expect CPI inflation to average 5.5 per cent this fiscal, and foresee the RBI holding interest rates steady for the remainder of this fiscal.
Nikhil Gupta, Chief Economist, MOFSL Group
Headline CPI inflation came in at 5.55per cent YoY in Nov’23, lower than the market consensus of 5.8 per cent (and our forecast of 5.9 per cent). Core inflation eased to 4.1 per cent, though food inflation was at a 3-month high of 8.7 per cent. Similarly, IIP grew 11.7 per cent, better than our forecast of 11 per cent and market consensus of 10.5 per cent. All said and done, we expect moderation in 3QFY24 real GDP growth and inflation to remain ~5.2 per cent YoY in 4QFY24. The RBI, thus, doesn’t need to think about easing at all and keep monetary policy unchanged in the coming months.
Vaibhav Shah, Fund Manager, Torus ORO PMS
CPI was expected to be higher mainly on account of unfavorable base effect and higher vegetable prices. After cooling off in September 2023, vegetable prices had again started firming up over the last 2 months leading to higher inflation print. As per last policy statement, RBI expects CPI to be more than 5 per cent on account of volatile vegetable prices and thus we believe that the latest CPI print will not have any significant impact on RBI’s rate decision.
Vivek Rathi, National Director Research, Knight Frank India
An uptick in headline inflation in Nov’23 was propelled by food prices; primarily the vegetable prices which are seasonal in nature. Barring food prices, the inflation has moderated across the categories. The core inflation has notably softened to 4 per cent, and a moderation has also been witnessed in fuel prices. Going forward, there would be an uptick in consumer headline inflation, however, will be volatile food prices. Broadly, the inflation has moderated, thus would provide the RBI to keep the repo rate unchanged for a while now.
Aditi Nayar, Chief Economist, Head Research and Outreach, ICRA Ltd
The CPI inflation expectedly retraced to 5.6per cent in November 2023, in line with ICRA’s expectations, from 4.9 per cent in October 2023. The uptick was entirely driven by the food and beverages segment, with all other groups either reporting a lower or an unchanged YoY inflation print in November 2023 relative to October 2023. The surge in food and beverage inflation to 8.0 per cent in November was largely led by a sharp increase in vegetables inflation, even as seven of the 12 food sub-groups reported a moderation in their YoY inflation print. However, readings for cereals and spices persisted in double-digits for the 15th and 18th consecutive months, respectively, while that for pulses did so for the sixth straight month in November.
The lag in cumulative rabi sowing vis-à-vis year-ago levels as well as in reservoir storage do not augur well for food prices, although the pace of the YoY inflation could moderate somewhat on the back of upcoming favourable base effects in Jan-Feb 2024. Besides, the impact of El Nino on moisture levels pose a concern, as it may prove to be unfavourable for the yields of rabi crops like wheat.
With lingering concerns related to prices of some food items, we foresee the Dec 2023 CPI inflation in a range of 5.6-5.8 per cent. We believe that the policy rates are appropriate at the current juncture and no further tightening is warranted in the near term, unless there is a durable shock to the CPI inflation trajectory. Consequently, we expect the MPC to maintain the status quo for the next couple of policy meetings, and foresee a shallow rate cut cycle of around 50-75 bps, commencing in the August 2024 meeting.
