Why retail inflation may not see a significant moderation in April

A significant easing in headline retail inflation in April is unlikely with food inflation, especially when vegetable prices seem to have remained high. According to experts, consumer price index (CPI)-based inflation in April is likely to have remained at the same rate of about 4.8 per cent as in March, if not a bit higher.
 
This is largely because of food inflation and prices of key vegetables like tomatoes, potatoes, and onions continuing to remain high. Official data for April on both CPI inflation as well as wholesale price index-based inflation will be released on May 14.
 
“Our estimate is that CPI inflation will be at 5 per cent in April, slightly higher than the average consensus of 4.8 per cent. Food inflation is quite high compared to last year and vegetable prices are higher. Since the last quarter, food inflation has been averaging at 8.5per cent. That’s a concern and I don’t think summer concerns will help in that. Typically, dry heat impacts vegetable output,” said Suman Chowdhury, Chief Economist and Head- Research, Acuité Ratings & Research.
 
CPI inflation was at 4.85 per cent in March this year, marginally dropping from 5.09 per cent in February. CPI inflation in the food and beverages basket was higher at 7.68 per cent in March, with retail inflation in vegetables at 28.34 per cent.
 
CRISIL, in its latest report on Roti Rice Plate, which is a monthly indicator of food prices, had said that on-year, the cost of a representative home-cooked veg thali rose 8 per cent in April, while that of a non-veg thali declined 4 per cent.
 
Pushan Sharma, Director- Research, CRISIL Market Intelligence and Analytics said, “Since November 2023, the prices of vegetarian and non-vegetarian thalis have been diverging. The vegetarian thali has become costlier on-year, while the non-vegetarian thali is cheaper,” he said, adding that this is mainly because of declining broiler prices, while the prices of vegetables such as onions, potatoes, and tomatoes have risen on a low base. “Going ahead, we expect vegetables prices to remain firm, though an anticipated decline in the prices of wheat and pulses would provide some respite,” he had said.
 
The RBI has projected CPI inflation at 4.5 per cent for the current fiscal but Choudhury said it could be higher at 5 per cent with Q1 CPI inflation at 4.9 per cent.
 
According to him, kharif output for some crops has also not been up to expectations and if that seems to be the case, then inflation could be higher than anticipated for the whole year. “While there is expectation of an above average monsoon, there is also a prediction of excess rainfall in certain places that can damage crops and impact prices. This risk remains and so it will be difficult to see a consistent drop or moderation in food inflation,” he said.
 
In a recent report, India Ratings pegged the average retail inflation at 4.6 per cent in FY25. “One of the key reasons for elevated retail inflation has been elevated food inflation. The elevated inflation in some food items such as cereals and pulses, combined with the random flare-up in select vegetables prices such tomato, onion, and potato due to the adverse climate shock has been a source of discomfort for the RBI in managing inflation,” it said. 
 
The government’s chief economic advisor V Anantha Nageswaran had recently expressed confidence that India would not see any “nasty upside” on inflation. “I think the expectation is that subject to monsoon, it will continue to head towards the midpoint of the target range (of 4 per cent),” he had said while noting that there can always be scenarios where geopolitics can cause inflation to be more than expected.