Inflation in the country is expected to ease in the coming months, with Consumer Price Index (CPI) inflation projected to remain in the range of 4.2-4.5 per cent in the fourth quarter of FY25, according to a report by Bank of Baroda.
The report highlighted that a significant moderation in food inflation, especially in vegetable prices, has provided much-needed relief to the headline CPI.
It said “CPI is likely to head lower in the coming months. We expect it to be in the range of 4.2-4.5 per cent in Q4”.
The report noted that this downward trend in vegetable prices has continued into January 2025, with data from the first 12 days indicating further declines. If this pace sustains, CPI inflation is likely to drop further.
In December 2024, CPI inflation moderated to 5.2 per cent, down from 5.5 per cent in November, aided by a high base and reduced food inflation. Food inflation declined to 8.4 per cent in December from 9 per cent in the previous month.
Notable corrections were observed in vegetable inflation, which fell to 26.6 per cent in December from 29.4 per cent in November, while pulses inflation eased to 3.8 per cent from 5.4 per cent, and cereals inflation dipped to 6.5 per cent from 6.9 per cent.
Factors such as improved mandi arrivals of key vegetables like tomato, onion, and potato, a bumper Kharif harvest, and stable global commodity prices contributed to this improvement.
However, the report cautioned about potential risks to inflation. A depreciating Indian rupee could lead to higher imported inflation. Additionally, while global commodity prices remain range-bound, ongoing U.S. sanctions against Russia could cause fluctuations in energy prices, potentially increasing input costs for industries.
The report said “Global commodity prices are largely range bound however, with ongoing US sanctions against Russia some upheaval in energy prices might be witnessed. This might increase the intermediate input costs”.
The upcoming Union Budget is expected to play a pivotal role in addressing inflationary concerns. Policies aimed at improving food supply chains may help mitigate the impact of climate-related shocks on inflation, the report suggested.
Overall, the report paints a positive outlook for inflation in the near term but warns of external factors that could pose challenges to this trajectory. (ANI)
