In January 2024, India’s Consumer Price Index (CPI) inflation eased to 5.10% YoY from 5.69% YoY in December 2023 on account of moderation in food inflation. Food inflation eased to 7.6% YoY in Jan’24 from 8.7% YoY in the previous month. However, food inflation remained broad-based, with 43% of items within the food basket witnessing inflation rates exceeding 6%.

Vegetable inflation decreased marginally to 27.0% YoY in Jan’24 from 27.6% YoY in Dec’23. Vegetable prices witnessed a correction of 4.2% MoM in Jan with the arrival of Kharif crops. Cereal inflation decreased to 7.8% YoY from 9.9% in the previous month. However, vegetables and cereals remained the top contributors to headline inflation.

Core inflation decreased to 3.6% YoY in Jan’24 from 3.9% 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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