New Delhi | India may witness a further decline in inflation, with estimates suggesting that retail inflation could remain at or below 4% in February. Falling prices across various sectors, especially food items, have contributed to this downward trend, keeping inflation within the Reserve Bank of India’s (RBI) target range.
Retail Inflation Trends and RBI’s Repo Rate Strategy
In January 2024, India’s retail inflation rate stood at 4.31%, and multiple agencies predict a further decline in February’s data, set to be released on Wednesday. The RBI has projected inflation at 4.8% for FY 2024-25 and 4.4% for the January-March quarter.
With inflation easing, RBI’s Monetary Policy Committee may consider reducing the repo rate in April, potentially leading to lower loan interest rates for consumers.
Analysts Predict Declining Inflation
Three major domestic and international agencies have estimated that inflation will remain around 4% or lower due to declining food prices and stable factory production costs.
Nomura Asia: Inflation Could Fall to 4% in February
Japanese brokerage firm Nomura Asia has forecasted a 4% inflation rate for February and 4.1% for the January-March quarter. The firm highlighted:
- Vegetable prices in India are decreasing significantly.
- Domestic demand is weakening, contributing to the slowdown.
- Stable factory production costs and improved crop yields will further lower inflation.
- Rupee depreciation losses may be offset by controlled inflation.
Bank of Baroda: Food Prices Will Stay Low Until June
According to Bank of Baroda’s Chief Economist Madan Sabnavis, inflation is expected to continue its downward trend. His key observations include:
- Retail inflation may drop to 4.1% in February.
- Wholesale vegetable prices, particularly tomatoes and potatoes, have declined significantly.
- Food prices are likely to remain low until June, impacting the entire food basket positively.
How Inflation Impacts Consumers
Inflation affects purchasing power directly. For example, if inflation is at 6%, the real value of ₹100 earned today would reduce to ₹94 in a year.
Thus, investments should be planned considering inflation, as it can erode the value of money over time.
Factors Influencing Inflation
Inflation is driven by demand and supply dynamics:
- High demand with low supply leads to rising prices (inflation).
- Low demand with high supply results in falling prices (deflation).
The Consumer Price Index (CPI), which tracks the price movement of over 300 essential items, is the key measure for retail inflation. Factors such as crude oil prices, commodity rates, and manufacturing costs also play a crucial role in determining inflation trends.
Conclusion
With inflation expected to remain under control, India could be entering an era of lower interest rates and cheaper loans, benefiting consumers and businesses alike. However, analysts caution that global economic conditions and supply chain factors could still influence future inflation trends.
