In December 2023, India’s Consumer Price Index (CPI) inflation rose to 5.69% YoY from 5.55% YoY in November on account of higher food inflation. Food inflation rose to 8.7% YoY in Dec’23, from 8.0% YoY in the previous month. Food inflation remained broad-based, with 44% of items within the food basket witnessing inflation rates exceeding 6%.

Vegetable inflation increased to 27.6% YoY in Dec’23 from 17.7% YoY in Nov’23. Consequently, vegetables remained the top contributor to headline inflation. Vegetable prices witnessed correction during Dec’23 with the arrival of kharif crops. However, the monthly correction was muted at 5.3% MoM in Dec’23, compared to a 12.7% correction in Dec’22.

Core inflation decreased to 3.9% YoY in Dec’23 from 4.1% in the previous month. Refined measures of core inflation, excluding transportation fuel and valuables, also continued to ease, reflecting a moderation in underlying inflationary pressures.

We expect inflation to average around 5.4% in FY24 and 4.5% in FY25. The RBI MPC is expected to maintain a pause until there is visibility of inflation durably aligning with the 4% target. The Rabi season production and IMD monsoon forecasts for 2024 are key events to watch for assessing the trajectory of food inflation.

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