Inflation to fall below RBI’s estimates at 4.4% in FY25: CMIE

Retail inflation, measured by the consumer price index (CPI), will likely dip to 4.3-4.4% in the fiscal year 2024-25 compared to an estimated 5.4% in the current fiscal, according to an estimate by the Centre for Monitoring Indian Economy (CMIE). 

The CMIE's forecast is slightly lower than the Reserve Bank of India’s (RBI’s) projection of 4.5% for the next fiscal. The think tank has attributed a normal supply of major vegetables, namely potatoes, onions, and tomatoes for a declining trend in inflation for the fiscal year 2024-25. 

"We have assumed that the prices of these commodities will not display too much volatility during the year. Fluctuations in vegetable supply in the current fiscal led to price fluctuations of the same. This led to a significant volatility in food inflation during the year. We assume the same will not be repeated in the upcoming fiscal," CMIE says.

However, the Mumbai-based organisation says core inflation, which excludes food, fuel and light, is expected to tread upwards. "From around 4.5% in fiscal year 2023-24, we expect core inflation to rise slightly and may even touch five per cent in 2024-25. This is primarily on account of an expected rise in prices in the miscellaneous group."

The food inflation is expected to average at around 3.5 to 3.7% in fiscal year 2024-25, but the overall food prices are expected to display only a normal rise. "However, in the current fiscal, food price volatility is expected to create a high base for the next fiscal. Consequently, we expect food inflation to be low in 2024-25," says CMIE.

The CMIE projections show petrol and diesel, two major commodities in the miscellaneous group, may not show any drastic changes in prices expected previously. However, in the second half of the fiscal year, these commodities may note a significant rise as crude oil prices were expected to rise. 

The CMIE projections align with the government’s estimates on retail inflation. The finance ministry, in its monthly economic review for January this month, said the outlook for a reasonably “low headline inflation rate is good” in the upcoming months, with the stable downward movement in core inflation and moderation in food prices.

The retail inflation softened further to a three-month low of 5.10% in January 2024. Going forward, the “outlook for the Indian economy appears bright”, said the ministry.

The central bank in its latest bi-monthly policy meeting had revised the inflation projection for Q4 FY24 downward to 5%, from 5.2% in the previous MPC meeting. The RBI also kept the policy rate unchanged at 6.5% to facilitate full monetary transmission. 

Headline inflation had moderated to an average of 5.5% during April-December 2023 from 6.7% during 2022-23. Food price inflation, however, continued to impart considerable volatility to the inflation trajectory.