India’s Retail Inflation Eases to 5.09% in February 2024

March 15, 2024

India’s consumer price index (CPI)-based inflation eased to 5.09 percent in February 2024, according to data released by the Ministry of Statistics and Programme Implementation.

Inflation Remains Within RBI’s Tolerance Range

The retail inflation rate had previously eased to 5.1 percent in January 2024 from 5.69 percent in December 2023. The recent numbers indicate that the target inflation has stayed within the Reserve Bank of India’s (RBI) tolerance level of 2-6 percent for six consecutive months. However, it is worth noting that this marks the 53rd consecutive week in which the headline number has exceeded the medium-target rate of 4 percent.

Rural and Urban Inflation

The rural inflation stood at 5.34 percent in February, unchanged from January and down from 5.93 percent in December. Similarly, urban inflation for February eased marginally to 4.78 percent, compared to 4.92 percent in January.

Food and Beverage Inflation

The food and beverage sector recorded an inflation rate of 8.66 percent in February, up from 8.3 percent in January 2024. This increase in food and beverage prices contributed to the overall inflation rate.

Implications for Monetary Policy

The latest inflation data comes just weeks before the RBI’s Monetary Policy Committee (MPC) is set to meet again on April 3-5. In the previous meeting on February 8, the rate-setting panel left the policy repo rate unchanged at 6.5 percent for the sixth consecutive time. The central bank’s latest forecast suggests that CPI inflation will average 5.0 percent in the current quarter before easing to 4.0 percent in July-September. However, it is expected to rise again to 4.7 percent in the first quarter of 2025.

Despite India’s policy rates being at their highest level in nearly eight years, economists believe that the economy’s continued better-than-expected growth performance could prompt the MPC to take its time in ensuring that inflation falls to acceptable levels on a durable basis.

Core Inflation and Sequential Price Momentum

Core inflation, which excludes food and fuel prices, fell further to 3.3 percent in February from 3.6 percent in January. The sequential price momentum was largely subdued in February, with only the housing price index rising by 0.5 percent month-on-month. Other groups in the CPI basket posted month-on-month increases in the range of 0.1-0.2 percent.

Outlook for March Inflation

Daily retail prices from the National Horticulture Board (NHB) and the Department of Consumer Affairs indicate a continued decline in vegetable prices month-on-month in the first two weeks of March. Additionally, prices of cereals and edible oils are also tracking lower on a monthly basis. The recent reduction in LPG prices by Rs 100 per cylinder is expected to reduce headline inflation by 0.1 percentage points in March.

India’s Industrial Production Grows 3.8% in January 2024

Industrial Output Growth

India’s industrial production grew by 3.8 percent in January 2024, according to official data released by the National Statistical Office (NSO) on March 14. The growth in factory output, measured in terms of the Index of Industrial Production (IIP), was lower compared to the 5.8 percent expansion recorded in January 2023.

Sectoral Performance

The manufacturing sector’s output grew by 3.2 percent in January 2024, down from 4.5 percent in the year-ago month. Mining production rose by 5.9 percent, while power output increased by 5.6 percent in January this year.

Cumulative Growth

During the period from April 2023 to January 2024, the IIP grew by 5.9 percent compared to a 5.5 percent expansion in the corresponding period of the previous year.

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