“Although the CPI inflation inched up to a four-month high of 5.7% in December 2023, it was comfortably below our forecast of 5.9%, amid a lower-than-expected rise in food inflation as well as the sharper-than-expected moderation in the miscellaneous segment.
The sequential uptick in the headline CPI inflation in December 2023 was entirely led by the food and beverages segment, with all the other sub-groups either reporting an easing or similar YoY prints in December 2023 compared to the previous month. Within the food segment, vegetables were expectedly the main culprit, even as seven of the 12 sub-segments witnessed a moderation in their YoY inflation print in the month.
The outlook for the inflation for certain items like rice, wheat and pulses remains somewhat vulnerable, given the estimated fall in annual kharif production, as well as the YoY lag in the ongoing rabi sowing season amid El Nino conditions.
Encouragingly, the core CPI inflation inched below the 4%-mark in December 2023, for the first time in the post-Covid period, counterbalancing the elevated food inflation print.
Looking ahead, we forecast the CPI inflation to moderate appreciably to ~5.2% in January 2024, aided by a dip in the food inflation print on account of an adverse base. Nevertheless, rate cuts appear distant, and are unlikely to emerge before August 2024, with a stance change expected in the preceding policy meeting.
The IIP growth expectedly crashed in November 2023, printing close to our forecast of 2.2%, following the reversal in the base effect related to the change in the festive calendar. Looking ahead, the mixed YoY performance of the available high frequency indicators in December 2023 relative to November 2023. suggests that the YoY IIP growth will improve only somewhat t0 3-5% in that month.”
