India Retail Inflation Climbs to 1.7%, Rate Cut Speculation Mounts
Overview
India's retail inflation is expected to surge to 1.6-1.7% in December, a sharp rise from November's 0.71%. Food prices, particularly vegetables and tomatoes, are driving this increase despite seasonal expectations. However, the figure remains well below the central bank's target, fueling speculation of potential interest rate cuts by the Monetary Policy Committee.
Inflation Ticks Up Sharply
India's retail inflation, measured by the Consumer Price Index (CPI), is projected to jump to between 1.6% and 1.7% in December. This represents a significant increase from the 0.71% recorded in November. The official data is slated for release by the Statistics Ministry on Monday.
Food Prices Drive Surge
Rising food prices are the primary catalyst for the uptick. Sequential gains in vegetable and tomato prices, driven by early winter demand and supply disruptions from October rains, have defied typical winter trends. DBS Bank notes sequential firmness in food and services contributing to the rise.
Below Target, Rate Cut Possibility
Despite the jump, the anticipated inflation rate remains comfortably below the Reserve Bank of India's median target of 4% and even its lower tolerance band of 2%. Analysts at Barclays and Union Bank of India also project figures around 1.55-1.66%. This scenario strengthens the possibility of further rate cuts by the Monetary Policy Committee (MPC) in its upcoming February or April meetings.
FY26 Forecasts Revised
Looking ahead, HDFC Bank forecasts FY26 inflation to be around 1.8%, revised down from previous estimates. They anticipate inflation staying below 3% for the remainder of the year, aided by potential GST rate cuts and healthy agricultural output.
