India’s retail inflation eased to 5.10% on an annual basis in January, down from a four-month high of 5.69% in December, according to data released by the Ministry of Statistics & Programme Implementation. The inflation rate remained within the Reserve Bank of India’s (RBI) tolerance band of 2-6%. Inflation in rural and urban areas stood at 5.34% and 4.92% respectively, down from the same period a year ago.

The sharp moderation in inflation can be attributed to cooling of food prices. The food inflation for January stood at 8.30%, down from 9.53% in December. Vegetable inflation also eased marginally to 27.03% from 27.64% in December. Additionally, fuel and light inflation contracted by -0.60% compared to -0.99% in the previous month.

On a sequential basis, the inflation rate witnessed a contraction of -0.11% in January, according to the released data.

In other economic news, India’s industrial production rose to 3.8% in December 2023, up from 2.4% in November, according to data provided by the Ministry of Statistics and Programme Implementation. The Index of Industrial Production (IIP) growth during April-December 2023-24 was 6.1%, up from 5.5% in the corresponding period a year ago.

The Reserve Bank of India (RBI), which held its repo rate at 6.50% for a sixth consecutive meeting on February 8, highlighted large and repetitive food price shocks as one of the biggest risks to ongoing disinflation trends. The RBI’s inflation forecast for FY24 remains unchanged at 5.4% despite concerns over rising food prices, crude costs, and domestic demand pressure.

RBI Governor Shaktikanta Das stated that the central bank is determined to bring down inflation to 4%, factoring in various factors beyond just inflation when shaping policies. Geopolitical events, supply chain disruptions, and volatility in international financial markets and commodity prices pose upward risks to inflation. The collective impact of repo rate increases is still influencing the economy.

In the Interim Budget 2024-25, Finance Minister Nirmala Sitharaman informed the Parliament that retail inflation is stable and has come down within the tolerance band due to the government’s steps to check price rise, especially in perishable commodities.