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Dec’24 CPI inflation down to a four-month low of 5.2%

Deceleration was broad-based

* Headline CPI inflation came down to a four-month low of 5.2% YoY in Dec'24 vs. 5.5% in Nov'24. The deceleration was broad-based. Food inflation eased to a four-month low of 8.4% (vs our forecast of 8.8%) and core inflation stood at 3.6% from 3.7% in the previous two months (vs our forecast of 3.8%). On a sequential basis, inflation declined 0.6% in Dec'24. The inflation number was slightly lower than the market consensus of 5.3% and our forecast of 5.4%. In 3QFY25, inflation stood at 5.6% vs. 4.2%/5.4% in 2QFY25/3QFY24.

* Food inflation came down to 8.4% YoY in Dec'24 (lowest in four months) vs. 9.0% in Nov'24. Details suggest that lower food inflation (vs last month) was mainly driven by the 30-month lowest increase in cereal prices, 25-month lowest increase in pulse prices, and some moderation in vegetable prices (26.6% in Dec'24, lowest in four months). On the other hand, prices of oil & fats went up sharply to a 32-month high of 14.6% in Dec'24. Additionally, prices of protein-based items (eggs, meat & fish, and milk products) also went up during the month. CPI, excluding veggies, stood at a 10-month high of 3.7% in Dec'24. Notably, the prices of fuel and light items continued to contract in Dec'24 (-1.4% YoY in Dec'24 vs - 1.8% in Nov'24).

* Other details suggest that: 1) Services stood at 3.5% YoY in Dec’24, similar to Nov’24 , while goods inflation came down to a four-month low of 5.7% in Dec’24; 2) CPI, excluding veggies (weight 94%), stood at a 10-month high of 3.7% YoY; 3) Imported inflation jumped to a 22-month high of 5.4% in Dec’24, while domestically generated inflation came down to 5.2%, lowest in four months (vs 5.6% in Nov’24) (Exhibit 3); 4) Standard core inflation (excluding food & energy) stood at 3.9% YoY in Dec’24, similar to Nov’24; and 6) Details confirm that 29% of the CPI basket posted 5%+ inflation in Dec’24 (vs 28% in Nov’24).

* Going forward, we see headline inflation at ~4.8% vs the RBI forecast of 4.5% in 4Q (depends on vegetables to a great extent), easing further toward 4% in 2QFY26 and lower in 2HFY26. With weak growth and continued fiscal deficit consolidation, headline inflation forecasts of 4-4.5% suggest that rate cut has a high probability in Feb'25.

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