In August 2024, India’s Consumer Price Index (CPI) inflation slightly increased to 3.65% year-over-year (YoY) from 3.60% YoY the previous month. Food inflation also rose, reaching 5.30% YoY in August 2024, up from 5.06% in the prior month.
Vegetables, with a CPI weight of 6.0%, continued to be the main contributor to inflation, followed by cereals (9.7%) and pulses (2.4%). In August, inflation for these items remained high, with vegetables at 10.7% YoY, cereals at 7.3% YoY, and pulses at 13.6% YoY. Overall, food inflation remained broad-based, with 40% of items in the food basket experiencing inflation rates above 6%.
Core inflation, excluding food and fuel, held steady at 3.44% YoY. However, core inflation and its refined measures, which further exclude valuables and transportation fuels, saw an increase in July due to a revision in mobile tariffs.
As of September 12, the monsoon has recorded 8% above-normal rainfall compared to the long-period average. The spatial distribution of rainfall has improved over the past month, with excess rainfall in Central and Southern India, normal levels in the North, and deficits in East and North-East India.
We expect inflation to average around 4.3-4.5% YoY for FY25. Food prices may continue to introduce volatility into headline inflation. The RBI’s Monetary Policy Committee might consider shifting the policy stance to ‘neutral’ in the October meeting, given the above-normal monsoon is likely to alleviate food inflation pressures.
