Economists Predict Core Inflation to Dip Below 3% in May Amid Market Shifts
Amid a backdrop of changing economic conditions, industry experts forecast a significant downturn in core inflation rates. With an eye on current trends, this downturn is anticipated to push the core consumer price index (CPI) beneath the 3% threshold as early as May.
This development arrives in the wake of lowered input costs and a downturn in private consumption, signaling a pivotal moment for economic strategists and market observers alike.
A Closer Look at the Factors Driving Inflation Trends
Economists pinpoint a combination of low commodity prices and subdued private consumption as key factors contributing to the anticipated decline in core CPI inflation. Dhiraj Nim from ANZ Banking Group highlights a noticeable slackening in core CPI’s sequential momentum, now standing at approximately 0.2% month-on-month in seasonally adjusted terms.
This trend, if it persists, is expected to nudge core inflation below the 3% mark by May 2024. February’s figures already showed core inflation at a modest 3.3%, marking the lowest point in the current series with the base year of 2012.
Moreover, the core inflation rate has consistently hovered around the 3% range since December. This consistent performance is partly attributed to the high base effect of the previous fiscal year, where core inflation averaged 6.1%.
Additionally, the ongoing decrease reflects weakened demand conditions, influenced by the Reserve Bank of India’s (RBI) steadfast monetary policy, maintaining the policy repo rate at 6.50% since February 2023.
Despite these trends, most economists project core inflation to average between 3-3.1% from March to June, before experiencing a gradual rise post-July. This anticipated shift is largely attributed to the base effect turning unfavorable.
Nevertheless, the expected increase in inflation is predicted to be slow-paced, given that producers face no significant cost-push pressures, allowing profit margins to stabilize.
Interestingly, the manufactured products segment within the Wholesale Price Index (WPI) basket, indicative of input price pressures, has remained in negative territory for 12 consecutive months. This indicates a lack of immediate pressure on inflation rates from input costs.
However, fast-moving consumer goods (FMCG) firms have signaled potential price adjustments of 2-3% in the latter half of FY25, driven by fluctuations in commodity prices, notably food and crude oil, as well as wage inflation.
Harsh Agarwal of Emami Ltd. notes that price adjustments in the personal care and healthcare categories could occur in the second half of FY25, suggesting a market stabilization from a demand perspective. This cautious optimism among FMCG leaders underscores the complex interplay of market forces shaping inflationary trends and the broader economic landscape.
In sum, as economists monitor these evolving trends, the potential dip in core inflation below the 3% threshold signifies a critical juncture. This development not only reflects the immediate impact of current economic policies and market conditions but also sets the stage for strategic adjustments as the fiscal year progresses.
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Amid a backdrop of changing economic conditions, industry experts forecast a significant downturn in core inflation rates. With an eye on current trends, this downturn is anticipated to push the core consumer price index (CPI) beneath the 3% threshold as early as May.
This development arrives in the wake of lowered input costs and a downturn in private consumption, signaling a pivotal moment for economic strategists and market observers alike.
A Closer Look at the Factors Driving Inflation Trends
Economists pinpoint a combination of low commodity prices and subdued private consumption as key factors contributing to the anticipated decline in core CPI inflation. Dhiraj Nim from ANZ Banking Group highlights a noticeable slackening in core CPI’s sequential momentum, now standing at approximately 0.2% month-on-month in seasonally adjusted terms.
This trend, if it persists, is expected to nudge core inflation below the 3% mark by May 2024. February’s figures already showed core inflation at a modest 3.3%, marking the lowest point in the current series with the base year of 2012.
Moreover, the core inflation rate has consistently hovered around the 3% range since December. This consistent performance is partly attributed to the high base effect of the previous fiscal year, where core inflation averaged 6.1%.
Additionally, the ongoing decrease reflects weakened demand conditions, influenced by the Reserve Bank of India’s (RBI) steadfast monetary policy, maintaining the policy repo rate at 6.50% since February 2023.
Despite these trends, most economists project core inflation to average between 3-3.1% from March to June, before experiencing a gradual rise post-July. This anticipated shift is largely attributed to the base effect turning unfavorable.
Nevertheless, the expected increase in inflation is predicted to be slow-paced, given that producers face no significant cost-push pressures, allowing profit margins to stabilize.
Interestingly, the manufactured products segment within the Wholesale Price Index (WPI) basket, indicative of input price pressures, has remained in negative territory for 12 consecutive months. This indicates a lack of immediate pressure on inflation rates from input costs.
However, fast-moving consumer goods (FMCG) firms have signaled potential price adjustments of 2-3% in the latter half of FY25, driven by fluctuations in commodity prices, notably food and crude oil, as well as wage inflation.
Harsh Agarwal of Emami Ltd. notes that price adjustments in the personal care and healthcare categories could occur in the second half of FY25, suggesting a market stabilization from a demand perspective. This cautious optimism among FMCG leaders underscores the complex interplay of market forces shaping inflationary trends and the broader economic landscape.
In sum, as economists monitor these evolving trends, the potential dip in core inflation below the 3% threshold signifies a critical juncture. This development not only reflects the immediate impact of current economic policies and market conditions but also sets the stage for strategic adjustments as the fiscal year progresses.
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