SBI Report Projects CPI Inflation to Average 4.8 Percent for 2024-25
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New Delhi, Dec 14 (NationPress) CPI inflation is anticipated to average 4.8 percent with a positive bias for the entire financial year 2024-25 as evolving food prices are crucial, as stated in an SBI report.
According to the report, fuel prices have been decreasing (with fuel and light inflation remaining negative for the last 15 consecutive months), which has resulted in food prices being the main driver of inflation.
“We forecast the RBI to implement a rate cut in February 2025 totaling 75 basis points over several rate cut cycles, and this decision is expected to remain unaffected by potential fluctuations in the US dollar, unlike in 2018 when the RBI refrained from raising rates despite significant pressure on the rupee,” the report elaborates.
The SBI report indicates that retail inflation across Indian states is aligning towards a 4 percent target (based on Sigma-Type methodology used over the last decade), highlighting the effectiveness of inflation targeting on a broader scale.
In essence, Sigma convergence occurs when the variation from 4 percent across states diminishes over time. Furthermore, both CPI General and CPI Food are converging; however, the rate of convergence is more pronounced in the headline CPI, with volatility in food inflation hindering a quicker convergence, as clarified by the report.
The report also notes that middle and high-income states have experienced a more significant reduction in food inflation over the past decade compared to low-income states, indicating a downward shift in the distribution.
“We believe that the migration of labor from low-income states to high-income states in search of job opportunities is contributing to a quicker disinflation in high-income regions, leading to a gradual decline in food inflation,” the report adds.
The correlation between the average daily wage rate of non-agricultural workers and rural inflation stands at a low 0.11 across states, suggesting that wage increases have not significantly influenced food inflation, indicating that a wage-price spiral is nearly non-existent in India.
A senior official pointed out that this phenomenon is attributed to various government welfare schemes providing free and subsidized food grains to the underprivileged, which helps maintain inflation at manageable levels.
