Inflation watch: No RBI pivot just yet
India’s latest inflation and industrial production numbers released last week have been a mild let-down. Retail inflation in December climbed to a four-month high of nearly 5.7% on-year, up from almost 5.6% in November, while industrial output growth slumped to an eight-month low of 2.4% on-year in November from 11.7% in October.
Sobering as these are, both were influenced by unfavourable base effects. As these normalize, the indicators are expected to show better readings.
Inflation, a key policy-input variable for the Reserve Bank of India (RBI), has lately been driven by food prices, although the winter harvest reaching markets in this quarter should help broader price pressures cool. Industrial production should also stabilize once a statistical aberration fades that was caused by the festive period falling in different months in 2023 and 2022.
That said, elevated inflation would keep talk of RBI rate cuts at bay for now. Unless inflation shows signs of durably reaching RBI’s targeted level of 4%, the central bank is unlikely to shift focus to perking up the economy with cheaper credit.
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