Is India's Inflation Set to Average 2.5% Over the Next Six Months?
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Synopsis
A recent HSBC report reveals that India's inflation could average about 2.5% over the next six months, below the RBI's 3.5% forecast. With food prices falling and strong crop production, the economy appears stable, but what does this mean for consumers?
Key Takeaways
- Projected inflation: 2.5% for the next six months.
- RBI forecast: 3.5%, indicating potential economic stability.
- Food prices: Experiencing deflation for five consecutive months.
- Crop production: Strong yields expected to support food prices.
- RBI rate cuts: Total of 100 basis points implemented this year.
New Delhi, June 13 (NationPress) According to an HSBC report released on Friday, India’s inflation is projected to average approximately 2.5 percent for the upcoming six months, which is notably lower than the RBI's prediction of 3.5 percent.
The inflation rate for June is slightly trending down compared to May.
“The low inflation rate can be linked to the high base effect from last year. Vegetable prices in the initial 10 days of June have surged between 0-13 percent,” stated HSBC Global Research.
The monsoon season commenced early, yet the rainfall has since diminished. Nevertheless, the sowing of the summer crops, especially rice and pulses, is proceeding well.
This, coupled with last year's robust cereal production, means that granaries are well-stocked, enabling the government to potentially manage cereal inflation over a two-year timeline, as noted in the report.
With a current level of 2.8 percent, both headline and core inflation (excluding gold) remain significantly below the central bank's target of 4 percent, while food prices continue to decline.
Food prices have been in deflation for five consecutive months, decreasing by 0.2 percent month-on-month. The price trends for fruits, eggs, fish, meat, and sugar have also been mild.
However, rising gold prices are sustaining higher core inflation. Gold constitutes 1.1 percent of the CPI basket and has escalated by over 30 percent in recent months. Excluding gold, core inflation stands at 3.5 percent year-on-year.
“Looking forward, should gold prices decrease in the second half of 2025 (as predicted by our commodities team), core inflation could quickly decline. Additionally, a stronger INR compared to early 2025, decreasing commodity prices, imported disinflation from China, and a slower growth rate than last year all suggest that core inflation is likely to remain subdued in the forthcoming months,” the report concluded.
The RBI has implemented 100 basis points in rate cuts this year, along with a 100 basis points reduction in the cash reserve ratio.
“We anticipate a pause during the meetings in August and October. However, we expect the RBI to enact a final 25 basis points rate cut in December, bringing the repo rate to 5.25 percent by the end of 2025,” stated the HSBC report.
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Point of View
I emphasize the importance of monitoring economic indicators like inflation for a comprehensive understanding of our nation's financial health. The data suggests a cautiously optimistic outlook, but ongoing vigilance is key to navigating potential challenges ahead.
NationPress
14/06/2025
Frequently Asked Questions
What is the current inflation rate in India?
India's inflation rate is projected to average around 2.5% for the next six months, according to an HSBC report.
How does this compare to the RBI's forecast?
This projection is lower than the Reserve Bank of India's forecast of 3.5%.
What factors are influencing the inflation rates?
Factors include last year's high base effect, changes in vegetable prices, and strong crop production.
What is the expected trend for food prices?
Food prices have been in deflation for five months, with a decrease of 0.2% month-on-month.
What actions have been taken by the RBI recently?
The RBI has implemented 100 basis points in rate cuts this year and reduced the cash reserve ratio by the same amount.
