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Below the Perspective on CPI Data By  Ms. Rajani Sinha, Chief Economist, CareEdge Ratings

“CPI inflation for November increased to 0.7%. The uptick was primarily driven by the fading favourable base from last year and a seasonal rise in prices of certain food items, which narrowed the deflation within the food basket. Vegetables, eggs, and meat and fish posted a sharp sequential increase, while the late withdrawal of the monsoon disrupted supplies of some vegetables—most notably tomatoes—which suffered crop damage. Inflation in edible oils moderated but remained elevated, limiting further downside in overall food inflation. This remains a key monitorable given weak kharif oilseed sowing and elevated global prices. Additionally, the government’s decision to impose a 30% duty on import of certain pulses is expected to support prices in this category. Overall, food inflation is expected to remain at moderate levels, supported by healthy agricultural activity and a favourable base. Adequate reservoir levels should also aid rabi sowing this year.

Outside the food basket, a strong rise in precious metal prices supported core inflation. Excluding precious metals, core inflation stood at 2.4%. Despite these pressures, the positive impact of GST rationalisation and continued deflation in the food and beverages category helped keep the overall inflation print comfortable. On the external front, global commodity prices are expected to remain broadly benign due to oversupply in the global crude oil market and overcapacity in China. However, several base metals—such as copper, tin, and aluminium—have witnessed sharp price increases, alongside precious metals like gold and silver. However, the rise in prices of these base metals has been counteracted by subdued prices of steel and iron. The Bloomberg Industrial Metals Index rose by roughly 12% YoY in December till date. The surge in base metal prices has been driven by strong industrial demand from the renewable energy and AI sectors, US Fed rate cuts, and expectations of fiscal stimulus in China. 

Looking ahead, headline inflation appears to have bottomed out in October but is expected to remain well below the RBI’s 4% threshold for the remainder of the year. We expect inflation to average 0.8% in Q3 and 3.1% in Q4 FY26, with a full-year FY26 average of 2.1%. For FY27, headline inflation is expected to average 4%, based on the current CPI basket composition. The upcoming introduction of the new CPI series will be an important development to monitor. From a monetary policy perspective, the recent rise in inflation is unlikely to be a concern for the RBI. Even though there is scope for another 25 bps rate cut based on the inflation projection, we expect the MPC to pause and preserve the policy space for a future rate cut only if the growth outlook worsens”.

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