Retail Inflation Falls to 3-Month Low, Signaling Possible Rate Cut in 2025

Retail inflation fell to a three-month low of 5.48% in November, signaling hopes for an early rate cut as the economy shows signs of recovery.

The Consumer Price Index (CPI) inflation dropped from October’s 6.21%, in line with predictions that vegetable prices would help bring down inflation. The decline in inflation was also supported by a cooling in the prices of food items like vegetables, cereals, and pulses, although meat, oil, and fats saw an increase.

In addition, factory output rose by 3.5% in October, reaching a three-month high, driven by strong performance in the manufacturing of consumer durables and garments during the festive season. This growth marks a positive shift for the economy, which had slowed in the second quarter of the fiscal year.

Devendra Pant, Chief Economist at India Ratings, noted that if inflation continues on its projected trajectory, the Reserve Bank of India (RBI) could implement a rate cut as early as February 2025. Pant also stressed the importance of favorable rabi crop sowing to keep food inflation in check, which has been a major contributor to overall inflation in recent times.

As inflation subsides, government officials including Finance Minister Nirmala Sitharaman and Commerce Minister Piyush Goyal have been calling for lower interest rates to stimulate economic growth. The RBI, which kept the key repo rate unchanged at 6.5% last week, aims to bring inflation within its target band of 2-6%.
RBI’s projection for CPI inflation in FY25 stands at 4.8%, with expectations of inflation in the range of 5.7% to 4.5% in the third and fourth quarters of the fiscal year. Despite the recent drop, food inflation remains elevated, largely due to disruptions caused by the monsoon.

Core inflation, excluding food and fuel prices, stood at 3.9% in November, showing a slight improvement from the previous month’s 4%. However, economists like Aditi Nayar from Icra are hopeful that easing food inflation and the prospects of a good rabi crop will lead to further reduction in overall inflation, potentially paving the way for rate cuts by mid-2025.

Meanwhile, industrial output in October reflected a positive trend, growing by 3.5% year-on-year, driven by consumer durables and garment manufacturing. However, concerns about industrial growth remain due to sluggish performance in key sectors like mining and electricity, highlighting the need for targeted policy interventions to sustain long-term industrial recovery.

Despite isolated gains, experts warn that the industrial landscape remains fragile, with concerns over investment appetite and broader economic inefficiencies persisting.

Retail inflation fell to a three-month low of 5.48% in November, signaling hopes for an early rate cut as the economy shows signs of recovery.

The Consumer Price Index (CPI) inflation dropped from October’s 6.21%, in line with predictions that vegetable prices would help bring down inflation. The decline in inflation was also supported by a cooling in the prices of food items like vegetables, cereals, and pulses, although meat, oil, and fats saw an increase.

In addition, factory output rose by 3.5% in October, reaching a three-month high, driven by strong performance in the manufacturing of consumer durables and garments during the festive season. This growth marks a positive shift for the economy, which had slowed in the second quarter of the fiscal year.

Devendra Pant, Chief Economist at India Ratings, noted that if inflation continues on its projected trajectory, the Reserve Bank of India (RBI) could implement a rate cut as early as February 2025. Pant also stressed the importance of favorable rabi crop sowing to keep food inflation in check, which has been a major contributor to overall inflation in recent times.

As inflation subsides, government officials including Finance Minister Nirmala Sitharaman and Commerce Minister Piyush Goyal have been calling for lower interest rates to stimulate economic growth. The RBI, which kept the key repo rate unchanged at 6.5% last week, aims to bring inflation within its target band of 2-6%.
RBI’s projection for CPI inflation in FY25 stands at 4.8%, with expectations of inflation in the range of 5.7% to 4.5% in the third and fourth quarters of the fiscal year. Despite the recent drop, food inflation remains elevated, largely due to disruptions caused by the monsoon.

Core inflation, excluding food and fuel prices, stood at 3.9% in November, showing a slight improvement from the previous month’s 4%. However, economists like Aditi Nayar from Icra are hopeful that easing food inflation and the prospects of a good rabi crop will lead to further reduction in overall inflation, potentially paving the way for rate cuts by mid-2025.

Meanwhile, industrial output in October reflected a positive trend, growing by 3.5% year-on-year, driven by consumer durables and garment manufacturing. However, concerns about industrial growth remain due to sluggish performance in key sectors like mining and electricity, highlighting the need for targeted policy interventions to sustain long-term industrial recovery.

Despite isolated gains, experts warn that the industrial landscape remains fragile, with concerns over investment appetite and broader economic inefficiencies persisting.