Lowering inflation, rising factory prices will keep the economy healthy

With inflation up to 5.48% in November and factory output registering a modest rise to 3.5% in October, we expect prices to continue to cool in the coming months and industrial production to pick up.

While the data will provide relief to the Reserve Bank of India and its new Governor Sanjay Malhotra, who has been mulling a rate cut amid sluggish growth, inflation is set to top 5% in December. But experts believe that if inflation continues to fall, the rate hike could end in February 2025.

According to government data released on Thursday, consumer price inflation fell to 5.48% in November from 6.21% last month as food prices fell. Food and beverage inflation slowed to 8.2% in November and vegetable prices rose 29.33% on the month.

“The top five commodities showing annual price increases in All India in November 2024 are garlic (85.14), potato (66.65), cauliflower (47.70), cabbage (43.58) and coconut oil (42.13),” he said. .

Meanwhile, industrial output as measured by the Index of Industrial Production was unchanged in October at 3.5% compared to 3.1% in September. Manufacturing also registered a recovery in the month and grew to 4.1% while mining and power generation grew at a slower rate of 0.9% and 2% respectively, in October.

Madan Sabnavis, economist, Bank of Baroda said that November is the third month in a row that inflation has crossed 5% and preliminary data shows that inflation rose by 5% in December based on food prices seen so far.

He, however, said that the future outlook for inflation is looking good with food prices coming down for sure.

Madhavi Arora, economist, Emkay Global Financial Services said that the increase in Core CPI prices continues to reflect domestic demand, driven by negative inflation. “We maintain our FY25 forecast at 4.9% while 4Q growth will be around 4.75%,” he said. Although the agency does not rule out a cut in February 2025, it said that it would be better to make a call closer to the policy window, especially with the new Monetary Policy Committee.

ICRA also estimates the headline CPI inflation to moderate to around 5.1% in December 2024 from 5.5% in November 2024, amid food and beverage inflation between these months, supported by good fundamentals and new arrivals. crops in December 2024.

“In our opinion, if the headline CPI falls to 5.0% or lower by December 2024, the chances of the MPC to cut rates at its February 2025 meeting would be very high. We still expect two rate cuts of 25 points each during the time we expect to cut rates,” said Aditi Nayar, Chief Economist and Head – Research & Outreach, ICRA.

ICRA also expects that the year-on-year growth of IIP will increase to 5% to 7% in November 2024. 2024 will provide a fair assessment of the current trends,” said Nayar.