India’s Consumer Price Index (CPI) inflation eased to 5.22% YoY in December 2024 from 5.48% in the previous month. The decline in headline inflation was largely driven by a fall in food inflation to 7.7% YoY in December 2024 from 8.2% YoY in November 2024. However, food inflation remained broad-based, with 45% of items in the food basket witnessing inflation rates surpassing 6%.

Within food, lower contribution from vegetables drove the decline in headline inflation. Vegetable inflation eased to 26.6% YoY in Dec’24 from 29.4% YoY in Nov, on account of a 7.4% MoM price correction.

Core inflation remained steady at 3.6% YoY in December 2024. Core inflation and its refined measures have bottomed out because of the revision in mobile tariffs and the increase in gold prices.

We expect inflation to align with the 4% target by H2FY26. The food inflation outlook appears favourable, supported by healthy kharif production and encouraging prospects for the rabi season. The RBI MPC is likely to initiate the rate-cut cycle from February 2025, as inflation is projected to gradually slide lower from current levels.

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