…food and core remain pressure points for inflation

Consumer Price Index (CPI) inflation moderated further in December to 5.72% on-year (from 5.88% in November), remaining below the RBI’s upper tolerance limit of 6.0% for the second consecutive month. The slowdown was largely led by sharp fall in vegetable prices with the arrival of new crops in winter. But pressure points remain from both food (cereals, milk, pulses) and core.

Retail inflation again undershot expectations due to sharp correction in vegetable prices, as most other major categories saw on-year rise in prices, i.e., food ex-vegetables, fuel, and core. Sticky core inflation remains the biggest worry. We see a modest downside to our CPI inflation forecast of 6.8% for this fiscal, owing to the sharper-than-expected fall in vegetable prices.

Inflation trends in December: Highlights

• CPI inflation slowed to 5.72% on-year in December, from 5.88% in November and comparable to the 5.7% print of December 2021
• Food and beverage inflation softened to 4.6% from 5.1%
• Fuel¹ inflation continued to trend higher for the second straight month, jumping to 11% (vs 10.6%)
• Core CPI² inflation remained sticky at 6.1%, slightly higher than the 6% of previous three months

¹ Refers to CPI fuel and light
² CPI excluding food and beverages and fuel and light