India's Inflation Expected to Remain Low at 2.5% for Next Six Months
Inflation Projections and Current Trends
New Delhi, June 13: A recent report from HSBC indicates that India's inflation rate is anticipated to average approximately 2.5% over the next six months, which is notably lower than the Reserve Bank of India's (RBI) estimate of 3.5%.
The inflation figures for June are showing a slight decrease compared to those in May.
HSBC Global Research attributes this lower inflation rate to a high base effect from the previous year, noting that vegetable prices have increased between 0% and 13% during the first ten days of June.
Although the monsoon season commenced early, rainfall has since diminished. However, the sowing of summer crops, especially rice and pulses, is progressing well.
This, combined with last year's robust cereal production, has resulted in full granaries, allowing the government to manage cereal inflation effectively over the next two years.
Currently, both headline and core inflation (excluding gold) stand at 2.8%, significantly below the RBI's target of 4%, with food prices continuing to decline.
Food prices have been in deflation for the fifth consecutive month, showing a month-on-month decrease of 0.2%. The price trends for fruits, eggs, fish, meat, and sugar have also remained stable.
Rising gold prices are contributing to elevated core inflation levels. Gold, which constitutes 1.1% of the Consumer Price Index (CPI) basket, has seen a price increase of over 30% in recent months. When excluding gold, core inflation is reported at 3.5% year-on-year.
Looking forward, should gold prices decrease in the latter half of 2025, as projected by the commodities team, core inflation may drop swiftly. Additionally, a stronger Indian Rupee compared to early 2025, declining commodity prices, and imported disinflation from China, along with slower growth than the previous year, suggest that core inflation is likely to remain subdued in the upcoming months.
The RBI has already implemented 100 basis points in rate cuts this year, alongside a 100 basis point reduction in the cash reserve ratio.
The report anticipates a pause in the RBI's meetings in August and October, but predicts a final 25 basis point rate cut in December, bringing the repo rate down to 5.25% by the end of 2025.