INDIA: Softening Food Inflation Expected to Drive Headline CPI Lower

CPI data for November is due at 10:30GMT/16:00 local time. As per the median estimate of the Bloomberg survey, headline inflation is seen cooling from +6.21% Y/Y in October to +5.50%. The surge in inflation last month was driven by a sharp pick-up in food and core inflation, but the RBI noted in its latest policy statement that, “Going forward, food inflation is likely to soften in Q4 with seasonal easing of vegetables prices and kharif harvest arrivals”. 

• Goldman Sachs expect headline inflation to decline to 5.6% y/y. However, they are adjusting their forecast as the observed decline in high-frequency data on food prices has been smaller than earlier expectations. Sequentially, they estimate food inflation to contract by 0.5% m/m and core inflation to remain unchanged at 3.7% y/y in November.
• JP Morgan expect November inflation to print at 5.6% y/y as food prices continue to keep inflation elevated. However, a sequential easing in food prices, particularly due to a decrease in vegetable prices, is expected in December. Currently, December inflation is tracking 5.5% such that 4Q24 is expected to average 5.8%, a tad above the RBI’s revised forecast of 5.7%.
• ANZ expect headline inflation at 5.7% y/y. Food inflation likely decelerated as vegetable prices fell month-on-month while core likely remained steady around 3.7%, they say. Overall, high headline inflation remains narrowly based on vegetable prices, excluding which, inflation is below 4%. A host of food inflation determinants beyond weather are easing, lending credence to the view that food inflation will fall decisively in the coming months.