Key Insights from the January 2024 CPI and December 2023 IIP:

• CPI moderated with a second consecutive month of decline in food inflation, particularly in vegetable prices. While the sustained reduction in core price pressures is encouraging, the RBI reiterated its commitment to maintaining monetary policy until the 4% CPI target is consistently met. Consequently, we anticipate the RBI to maintain a prolonged pause on interest rates and policy stance, as outlined in our post-MPC analysis. IIP growth showed resilience despite a high base effect.
• CPI decreased to 5.1% in January from 5.7% in the previous month and 6.5% a year ago. Sequentially, inflation declined by -11bps compared to a -32bps decrease in the previous month. Core CPI, at 3.5% year-on-year, continued its downward trajectory for the seventh consecutive month, rising by +31bps month-on-month compared to +2bps in the preceding month.
• The decline in vegetable prices (-5% month-on-month) contributed to a reduction of -58bps in headline food inflation, compared to a -73bps contraction in the previous month. Housing and fuel & light prices increased by 0.4% each, while clothing and pan/tobacco prices rose by 0.2% and 0.1% respectively.
• Services CPI remained stable at 0.2% month-on-month, consistent with the previous month. The highest price hikes were observed in medical care (0.4%) and personal care (0.3%), with other categories experiencing increases of 0.1% to 0.2%.
• IIP growth improved to 4% year-on-year, up from 2% in the previous month and down from 5% in December 2022.
• Mining, manufacturing, and electricity sectors recorded growth of 5%, 4%, and 1% year-on-year respectively, with 12 out of 23 industries advancing year-on-year. Notable contributors to IIP growth included other transport equipment, motor vehicles, fabricated metals, and basic metals.
• Consumer durables, primary goods, and infrastructure emerged as the top-performing segments.
• CPI at 3-month low: January’s CPI eased to 5.1%, lower than the PC/Consensus estimates of 5.3%/5%, down from 5.7% in the previous month and 6.5% a year ago. Core CPI decreased to 3.5% year-on-year from 3.8% in the previous month, with a month-on-month increase of 31bps compared to a rise of 2bps in the previous month. Food inflation decreased by -58bps month-on-month, driven by declines in vegetable (-4%) and fruit prices (-2%). Housing and fuel & light prices increased by 0.4% each, while clothing and pan/tobacco prices rose by 0.2% and 0.1% respectively. Services inflation remained stable at 0.2%, with the highest price increases observed in medical care (0.4%), personal care (0.3%), household requisites (0.2%), recreation (0.2%), education (0.2%), and transport & communication (0.1%).
• IIP growth accelerated: December’s IIP witnessed 3.8% year-on-year growth, surpassing the PC/Consensus estimates of 3.5%/2.5%, up from 2% in the previous month and 5% a year ago. Sequentially, IIP recorded a 7% improvement compared to a -2% decline in the previous month. Mining, manufacturing, and electricity sectors registered 5%, 4%, and 1% year-on-year growth respectively, compared to 10%, 4%, and 10% growth in December 2022. Among the use-based segments, all segments exhibited stronger year-on-year growth, with consumer durables (5%) leading the way, followed by primary goods (4.6%) and infrastructure goods (4%). Sequentially, consumer non-durables continued their growth trend from the previous month, while other sectors rebounded from the contraction observed in the previous month. Sector-wise, 12 out of 23 sectors recorded year-on-year growth, with notable advancements in other transport equipment (29%), motor vehicles (9%), fabricated metals (9%), and basic metals (7%). However, production declined in tobacco products (-9%), paper products (-6%), and computer & electronics (-5%), while chemicals and machinery production remained stable.