In November 2023, India’s Consumer Price Index (CPI) inflation rose to 5.55% YoY from 4.87% YoY in October, on account of higher food inflation. Food inflation rose to 8.0% YoY in Nov’23, from 6.3% YoY in the previous month. Within the food segment, vegetable inflation increased to 17.7% YoY in Nov’23 from 2.8% YoY in Oct’23. Consequently, there was a steep increase in vegetables’ contribution to headline inflation. Overall, food inflation remains quite broad-based, with 41% of items within the food basket witnessing inflation rates exceeding 6%.

Fluctuating vegetable prices are imparting volatility to CPI inflation. There has been a sharp increase in onion prices since mid-October. Tomato prices are again inching up after falling over the past few months. Prices for cereals and pulses are also rising on account of weak kharif production.

Core inflation decreased to 4.1% YoY in Nov’23 from 4.3% in the previous month. Refined measures of core inflation, which exclude transportation fuel and valuables, also continued to ease, reflecting a moderation in underlying inflationary pressures.

We expect inflation to average around 5.5% in FY24. Volatile vegetable prices and weak agricultural production pose risks to the inflation outlook. The RBI MPC is expected to maintain a pause until there is visibility of inflation durably aligning with the 4% target.

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