Low base may push CPI inflation to a 4-month high of 5

Low base may push CPI inflation to a 4-month high of 5.9 per cent in December

India’s retail inflation based on the Consumer Price Index (CPI) likely rose to a four-month high of 5.9% in December. This is believed to be due to the statistical effect of a low base, as sequentially price pressures have eased, according to an FE poll of 20 economists. The estimates range from 5.5% to 6.4%.

In November CPI inflation was at 5.55% and in December 2022, it was at 5.72%. At the projected 5.9%, the overall CPI index would be down 0.1% month-on-month in December.

Prices of key food items were down on a month-on-month basis in December. Onion prices were lower by 13.6% on month and potato by 3.8%. Tomato prices too were down by 2.8% in December.

Prices of wheat and pulses, on the other hand, remained flat during the month, while that of rice was up marginally by 0.8%. Onion prices that rose sharply in November have cooled off now, mainly on account of the government’s efforts to curb price pressures by extending the ban on the commodity’s exports till March.

Headline inflation has largely been guided by extreme volatility in food prices since July. However, December seems to be the month when food prices have more or less been in control; and would not starkly add to the headline print.

CMIE, nevertheless, feels that a low base would push food inflation to 10.60% in December from 8.70% in November. It projects vegetable inflation to have skyrocketed to 34% in December 17.70% in the previous month.

On core inflation – most economists feel that it may come in at slightly below 4% in December, primarily due to a high base effect. In December 2022, core inflation was at 6.1%.

“Retracement in global energy prices (crude oil, coal, natural gas) is helping ease input costs for firms; and despite resilient domestic demand, demand-pull pressures are not visible in core inflation components,” said Barclays, which has pegged core inflation to print 3.99% in December.

ICICI Securities Primary Dealership has projected core inflation at 4% and CMIE at 3.95%.