Inflation To Go Down In Coming Months? Bank Of Baroda Has A Take

According to a report by Bank of Baroda, inflation is expected to ease in the coming months, with Consumer Price Index (CPI) inflation projected to remain in the range of 4.2-4.5 per cent in the fourth quarter of FY25.

CPI Corrections : New Numbers

The report highlighted that the CPI has improved due to significant moderation in food inflation, especially in vegetable prices.

"CPI is likely to head lower in the coming months. We expect it to be in the range of 4.2-4.5 per cent in Q4"., the report said.

The report also highlighted that the downward trend in vegetable prices has continued from 2024, into January 2025.

The data from the first 12 days on 2024 indicates further declines. If the price trend can sustain itself, inflation is likely to drop further.

In December 2024, CPI inflation moderated to 5.2 per cent, down from 5.5 per cent in November, aided by a high base and reduced food inflation. Food inflation declined to 8.4 per cent in December from 9 per cent in the previous month.

Notable corrections were observed in vegetable inflation, which fell to 26.6 per cent in December from 29.4 per cent in November, 2024. Pulses inflation dropped down to 3.8 per cent from 5.4 per cent. Cereals inflation dipped to 6.5 per cent from 6.9 per cent.

Why Are Vegetables Cheaper?

Factors such as improved mandi arrivals of key vegetables like tomato, onion, and potato, a bumper Kharif harvest, and stable global commodity prices contributed to this improvement.

However, the report cautioned about potential risks to inflation. A depreciating Indian rupee could lead to higher imported inflation. Additionally, while global commodity prices remain range-bound, ongoing U.S. sanctions against Russia could cause fluctuations in energy prices, potentially increasing input costs for industries.

The report said "Global commodity prices are largely range bound however, with ongoing US sanctions against Russia some upheaval in energy prices might be witnessed. This might increase the intermediate input costs".

The upcoming Union Budget is expected to play a pivotal role in addressing inflationary concerns. 

Policies aimed at improving food supply chains may help mitigate the impact of climate-related shocks on inflation, the report suggested.

Overall, the report paints a positive outlook for inflation in the near term but warns of external factors that could pose challenges to this trajectory.