Food and Beverages Drive Domestic CPI higher while Core CPI at 3.89% falls to the lowest level since 2020

In the India Week Ahead, I estimated CPI print at 5.60%. The CPI release showed CPI for Dec at 5.69%. FY24 Q3 average CPI is seen at 5.37% which is lower than RBI projection of 5.60% for the quarter. The headline inflation was driven by elevated Food and Beverages segments with the usual culprit seen as Cereals, Fruits, Vegetables, Pulses and Products and Spices. Oil and Fats was the only category that showed sharp deceleration in prices from a year ago.

General Index	Wt	YoY Growth
1) Food and beverages	45.86	8.70%
2) Pan, tobacco and intoxicants	2.38	3.65%
3) Clothing and footwear	6.53	3.61%
4) Housing	10.07	3.63%
5) Fuel and light	6.84	-0.99%
6) Miscellaneous	28.31	4.07%

India's Core Inflation grew 3.89%, exhibiting disinflation, falling to the lowest level since 2020. The prices component of Mfg and Services PMI also showed the trend of disinflation. 

How does this inflation print affect the trajectory ?

Qtr	RBI Projections	Glide Path (own est)	Real Rates(WACR 6.77% - Inflation)
Q3	5.60%	5.37%	1.40%
Q4	5.20%	4.95%	1.82%
FY 25 Q1	5.20%	5.20%	1.57%
FY25 Q2	4.00%	4.32%	2.45%

Now as I have written earlier, Q2 FY25 will see peak real rates and that's when the rate cutting cycle would begin in earnest in India. I expect 75 - 100 bps of rate over the next FY and Durable Liquidity easing measures to commence from Q1 FY25.