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SBI Research in its Ecowrap report has said India’s retail inflation gauged by the Consumer Price Index (CPI) is expected to remain slightly above 5 per cent till May before declining towards 3 per cent in July. The retail inflation print is expected to stay below 5 per cent beginning November till the end of the financial year 2024-25. Retail inflation in India eased a tad in February to 5.09 per cent from 5.10 per cent the prior month, due to the deceleration of prices in all categories except food. Within food inflation, protein items (meat, egg) inflation increased exorbitantly (in the range of 400-500 basis points) in February month as compared to January. Vegetable prices also increased month-on-month by 300 basis points to 30.2 per cent. Core CPI declined to 3.37% - a 52-month low and reached the level of Oct-19. The retail inflation was at a four-month high of 5.69 per cent in December.

The retail inflation in India though is in RBI’s 2-6 per cent comfort level but is above the ideal 4 per cent scenario. Barring the recent pauses, the RBI has raised the repo rate by 250 basis points cumulatively to 6.5 per cent since May 2022 in the fight against inflation. Raising interest rates is a monetary policy instrument that typically helps suppress demand in the economy, thereby helping the inflation rate decline. At the latest monetary policy meeting, the RBI pegged India’s retail inflation projections for 2024-25 at 4.5 per cent, with Q1 at 5.0 per cent, Q2 at 4.0 per cent, Q3 at 4.6 per cent, and Q4 at 4.7 per cent, with risks evenly balanced.

SBI Research said spatial heatmap shows that the largest weighted contribution to the current reading of retail inflation came from Maharashtra and Uttar Pradesh. Report mentioned ‘With moderate fuel prices, inflation is currently being driven by food price dynamics. Looking ahead evolving food prices will determine domestic inflation.’ The report suggested Department of Consumer Affairs publish a detailed list of vegetable prices other than only TOP (tomato, onion, potato). This will make it easier to fathom the direction of vegetable price impact on CPI (retail inflation. In recent months, vegetable prices in CPI have been driven mostly by prices of other vegetables in the basket apart from TOP. It added ‘Based on all the scenarios, the current repo rate at 6.5 per cent, looks ideal. We can expect the first rate cut only in Q2FY25.’