Baby steps towards the inflation target

Headline inflation continued making progress towards the central bank’s 4% inflation target with food inflation easing for the second consecutive month and non-food inflation stablising. Consumer Price Index inflation cooled to 5.2% from 5.5% in November; food inflation eased to 8.4% from 9% whereas non-food inflation stayed at 3.1%.

During December, vegetable and pulses inflation softened but edible oil prices continued to simmer. Despite the softening, however, vegetable inflation sizzled at 26.6%, while edible oils inflation was at a 33-month high of 14.6%. Despite easing a tad over the past two months, food inflation remains elevated and somewhat rigid.

Food inflation, which has a 39.1% weight in the Consumer Price Index (CPI) basket, has averaged 8.4% so far this fiscal, higher than the 7.5% in fiscal 2024. Food prices have been the major hurdle for rate cuts, keeping headline inflation high and household inflation expectations elevated.