In March 2024, India’s Consumer Price Index (CPI) inflation eased to 4.85% YoY from 5.09% in the previous month. Headline CPI inflation declined due to sharp deflation in fuel prices. Fuel price inflation decreased to -3.2% YoY from -0.8% in February.

Food inflation, however, remained elevated at 7.7% YoY. Vegetables, cereals, and pulses together account for 18% of the weight in the CPI basket but contributed a significant 55% to headline inflation in March 2024. Food inflation also remained broad-based, with 43% of items in the food basket witnessing inflation rates surpassing 6%.

Core inflation eased to a series low of 3.26% YoY as the cut in transportation fuel prices (petrol and diesel) offset the rise in gold prices. Steady correction in core inflation (excluding transportation fuel and valuables) reflects continued moderation in underlying inflationary pressures.

Skymet forecasts a normal monsoon at 102% of the long-period average in 2024. Household inflation expectations also continue to trend downwards. Both factors bode well for the future inflation trajectory. We anticipate inflation to average around 4.3-4.5% in FY25. While food prices may contribute to volatility in headline inflation, subdued consumption is expected to keep core inflation at a benign level.

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