India’s Inflation Eases to 3-Month Low in January, IIP Up in December

INDIA: According to a report by CRISIL Market Intelligence and Analytics, India’s inflation based on the Consumer Price Index (CPI) eased to a three-month low of 5.1% in January from 5.7% in December, largely driven by lower food prices. However, the report highlights that a further drop in core inflation to 3.5%, a 50-month low, stole the limelight.

Despite easing in January, overall food inflation remains elevated. On the positive side, rabi sowing has picked up and exceeded last year’s level, which augurs well for food inflation going forward. The report predicts that CPI inflation will average 4.5% in fiscal 2025, compared to an estimated 5.5% this fiscal. Cooling domestic demand, assumption of a normal monsoon, along with a high base for food inflation should help moderate inflation next fiscal. A non-inflationary budget that focuses on asset-creation rather than direct cash support also bodes well for core inflation.

The Index of Industrial Production (IIP) increased to 3.8% on-year in December from 2.4% in November, driven by consumption and industrial sectors. Growth in manufacturing picked up (3.9% on-year in December vs 1.2% the previous month), while growth in electricity (1.2% vs 5.8%) and mining (5.1% vs 7.0%) slowed.

The report predicts that slowing growth in manufacturing and services will lead to GDP growth of 6.4%, on average, next fiscal compared with 7.3% this fiscal. Overall, the report suggests that India’s economy is showing signs of improvement, with easing inflation and an increase in industrial production.

CRISIL Market Intelligence and Analytics

• Inflation based on the Consumer Price Index (CPI) eased to a three-month low of 5.1% in January from 5.7% in December largely driven by lower food prices. However, a further drop in core inflation to 3.5% – a 50-month low – stole the limelight.
• Despite easing in January, overall food inflation remains elevated. On the positive side, rabi sowing has picked up and exceeded last year’s level, which augurs well for food inflation going forward.
• We expect CPI inflation to average 4.5% in fiscal 2025 vs an estimated 5.5% this fiscal. Cooling domestic demand, the assumption of a normal monsoon along with a high base for food inflation should help moderate inflation next fiscal. A non-inflationary budget that focuses on asset creation rather than direct cash support also bodes well for core inflation.
• The Index of Industrial Production (IIP) increased to 3.8% on-year in December from 2.4% in November driven by consumption and industrial sectors.
• Growth in manufacturing picked up (3.9% on-year in December vs 1.2% the previous month), while growth in electricity (1.2% vs 5.8%) and mining (5.1% vs 7.0%) slowed.
• We expect slowing growth in manufacturing and services to lead to GDP growth of 6.4%, on average, next fiscal compared with 7.3% this fiscal.