India's CPI Eases To 5.09% In February, Core Inflation Comforting; A Rate Cut By RBI Soon?

India's consumer price index (CPI) inflation eased to 5.09% in February 2024, compared to 5.10% in the previous month. However, the latest inflation print was slightly below market expectations. Nonetheless, retail inflation stays below RBI's upper tolerance limit of 6% for the sixth consecutive month. But as RBI approaches the April 2024 monetary policy, the comforting factor is the relief in core inflation to 3.3%.

In February, the CPI inflation rate in the rural region at 5.34%, unchanged from the previous month, while it was the urban region inflation rate that eased to 4.78% from 4.92% in January 2024, hence, easing overall CPI.

The inflation rate was at 6.44% in February 2023.

Further, in the month under review, the consumer food price index (CFPI) inflation rate rose to 8.66% in February 2024, compared to 8.30% in January 2024, and 5.95% in the same month a year ago.

The index remained unchanged at 185.8 in February 2024 versus 185.5 in January 2024.

Akhil Mittal, Senior Fund Manager-Fixed Income, Tata Asset Management said, "Headline inflation in February 2024 stands at 5.09%, slightly below market expectations of 5% and lower than January's 5.10%. The major contributor was food inflation, registering at 8.66% against 8.3% in January."

But rising food prices are seen as concerning. Nish Bhatt, Founder & CEO, of Millwood Kane International, said, "Hereon, deflation, increased production, and a rebound in rural consumption are all to be expected as the election draws near. On the other hand, the unpredictability surrounding food prices is concerning and requires observation."

On the contrary, Vivek Rathi, National Director of Research, Knight Frank India shed light upon other sectors. He said, "Excluding food, prices in all other categories have moderated compared to last year, with fuel inflation showing a decline of 0.8%. Core inflation is also decreasing, alleviating pressure on households. And while still high, the gradual decline in inflation supports growth in consumption-driven sectors, including real estate and the broader economy."

The price data are collected from selected 1114 urban Markets and 1181 villages covering all States/UTs through personal visits by field staff of the Field Operations Division of NSO, MoSPI on a weekly roster. During February 2024, NSO collected prices from 100.0% villages and 98.5% urban markets while the market-wise prices reported therein were 90.3% for rural and 92.7% for urban.

On sector-wise, the inflation rate of food and beverages stood at 7.76% in February 2024, while inflation in pan, tobacco and intoxicants stood at 3.12%. The inflation rate of clothing and footwear was at 3.14%, housing inflation was at 2.88%, and the fuel and light rate was in deflation at 0.77%. Miscellaneous inflation was at 3.57%.

Notably, Mittal pointed out saying, core inflation remains below 3.4%, offering significant reassurance and potentially steering headline inflation closer to the RBI's 4% target in the long run.

Mittal further said, "While the RBI has highlighted the risk of food inflation spilling over into broader inflation, we anticipate the regulator to maintain a cautious stance. However, the softening of core inflation should provide relief. We think RBI would rather continue with stability priority and continue maintaining the 4% inflation target as sacrosanct, and hence we do not see a premature easing from RBI."

Meanwhile, Raghvendra Nath, MD, Ladderup Wealth Management said, "Additionally, the easing of core CPI inflation to 3.3% (from 3.6% in January) offers a sigh of relief, potentially bolstering the RBI's confidence as it approaches the upcoming MPC meeting in early April."

Rathi further said, "India's economic growth continues to gain momentum, evidenced by an 8.4% GDP growth in Q3 FY24. Given the economy's strong performance, the RBI is unlikely to reduce key policy rates soon, since inflation still remains persistently over the RBI's targeted level of 4%."