CPI Inflation Eases To 11-Month Low At 4.83% In April 2024; Food Prices Rise As RBI Warned

India's consumer price index (CPI) inflation eased to 11-month low at 4.83% in the month of April 2024. This will also be the eighth consecutive month where retail inflation has stayed below RBI's upper tolerance limit. The current inflation print is in-line with market expectations, and slightly lower from the March 2024 rate of 4.85%. However, rise in food and beverages remain a risk factor.

All India CPI number came in at 4.83%, while corresponding inflation rat for rural and urban area stood at 5.43% and 4.11%, respectively in April 2024.

CPI was at 4.85% in March 2024, and at 4.70% in April 2023.

Akhil Mittal, Senior Fund Manager-Fixed Income, Tata Asset Management said, "CPI came in at 4.83 yoy, in line with expectations. All broader indices are well contained other than food prices , which rose by 8.7 pct. Overall in line with RBI trajectory and hence may not have any material impact on policy / markets."

Further, as per Trading Economics data, prices slowed for housing (2.68% vs 2.77% in March) and clothing and footwear (2.85% vs 2.97%), while prices fell faster for fuel and light (-4.24% vs -3.24%). On the other hand, inflation rose for food and beverages (7.87% vs 7.68%), aligning with the RBI's warning that uncertain agricultural conditions underpin inflation risks in the Indian economy.

RBI's medium-term target for consumer price index (CPI) inflation is of 4 per cent within a band of +/- 2 per cent, while supporting growth.

The overall consumer food price index stood at 8.70% in April 2024, compared to 8.52% in March 2024, and 3.84% in April 2023.

In the April 2024 monetary policy, RBI said, going ahead, food price uncertainties would continue to weigh on the inflation outlook. An expected record rabi wheat production in 2023-24, however, will help contain cereal prices. Early indications of a normal monsoon also augur well for the kharif season. On the other hand, the increasing incidence of climate shocks remains a key upside risk to food prices.

RBI further said, "Low reservoir levels, especially in the southern states and outlook of above normal temperatures during April-June, also pose concern. Tight demand supply conditions in certain pulses and the prices of key vegetables need close monitoring. Fuel price deflation is likely to deepen in the near term following the recent cut in LPG prices."

After witnessing sustained moderation, cost push pressures faced by firms are showing upward bias. The recent firming up of international crude oil prices warrants close monitoring. Geo-political tensions and volatility in financial markets also pose risks to the inflation outlook, RBI said.

Accordingly, RBI predicts CPI inflation for 2024-25 is projected at 4.5 per cent with Q1 at 4.9 per cent; Q2 at 3.8 per cent; Q3 at 4.6 per cent; and Q4 at 4.5 per cent.

On April 5, MPC noted that domestic economic activity remains resilient, backed by strong investment demand and upbeat business and consumer sentiments. Headline inflation has come off the December peak; however, food price pressures have been interrupting the ongoing disinflation process, posing challenges for the final descent of inflation to the target. Unpredictable supply side shocks from adverse climate events and their impact on agricultural production as also geo-political tensions and spillovers to trade and commodity markets add uncertainties to the outlook.

As the path of disinflation needs to be sustained till inflation reaches the 4 per cent target on a durable basis, the MPC decided to keep the policy repo rate unchanged at 6.50 per cent in this meeting. Monetary policy must continue to be actively disinflationary to ensure anchoring of inflation expectations and fuller transmission, RBI said.