At last, inflation seems set to soften and stay in a relatively cool range

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Subscribe to enjoy similar stories. Supply-side forces had driven India’s annual inflation to a high of 6.0% and 6.4% in 2020-21 and 2022-23 respectively, amid pandemic-led supply chain disruptions, high commodity prices, sticky service-sector pressures and elevated core inflation. Headline inflation has since drifted lower, notwithstanding sequential swings around the monsoon months and on weather-related triggers.

From 6.4% in 2022-23, Consumer Price Index (CPI) inflation eased to 5.2% in 2023-24 and is likely to settle in a range of 4.2-4.6% this year. August 2024 inflation came in slightly above expectations, mainly on a divergence in food versus ground-level data. Food prices corrected much less than expected across sub-segments like pulses, vegetables, cereals, sugar, etc.

Other segments were along expected lines, with continued disinflation in fuel and modest service-sector pressures. Core inflation (sans food and fuel) held steady at 3.4% year-on-year, pointing to a slight pass-through from telecom tariff hikes. There were indications that diesel and petrol prices might be cut if global crude oil (currently at a three-year low) stays soft.

Brent crude is down 10% month-to-date versus 2023-24’s average. Food costs have eased in September and we will need to see if this is reflected in sub-trends. Either way, receding base effects were expected to keep the headline print above 4% in September.