At 4.3% in FY25, inflation may head lower than RBI forecast, estimates CMIE

Cost of housing, tobacco and other intoxicants among those bucking the trend

Inflation may decline for two years in a row. Inflation is likely to fall to 4.3 per cent in the financial year 2024-25 from 5.4 per cent in the financial year 2023-24, according to an estimate by the Centre for Monitoring Indian Economy (CMIE).

This is lower than the consumer price index (CPI) projection by the Reserve Bank of India (RBI) for the next financial year at 4.5 per cent. In the financial year 2022-23, the inflation rate had increased by 6.7 per cent, the highest in nine years, including the financial year 2014-15. The inflation rate in January this year had declined to 5.1 per cent from 5.7 per cent in December 2023. The forecast of 5.4 per cent for the financial year 2023-24 would make this the lowest annual inflation rate since the pandemic began.

Lower food inflation with no interruptions in the supply of vegetables such as potatoes, onions, and tomatoes is a key factor, according to a note from the organisation dated March 1.

Food and beverages inflation will be at 3.4 per cent in the financial year 2024-25 compared to 7.1 per cent in the financial year 2023-24 and 6.7 per cent in the financial year 2022-23, according to CMIE projections. Clothing and footwear will record an inflation rate of 4.1 per cent, lower than 4.8 per cent in the financial year 2023-24. It was the highest in a decade in the financial year 2022-23 at 9.5 per cent.

Some components are likely to buck the trend. As per the CMIE projections, housing costs are likely to increase, with the inflation rate reaching 4.5 per cent in the financial year 2024-25. This is the highest since the financial year 2019-20. Among the different components, the increase in the inflation rate will be the highest for pan, tobacco, and intoxicants at 4.7 per cent from 3.9 per cent in the financial year 2023-24. It was 2.2 per cent in the financial year 2022-23.

The think-tank expects core inflation (excluding food, fuel, and light) to reach 5 per cent in the financial year 2024-25 from around 4.5 per cent in the financial year 2023-24 because of the rise in prices of components in the miscellaneous group.

The group includes household goods and services, health, transport and communication, recreation and amusement, education, and personal care and effects. The inflation rate for items in the miscellaneous group will increase to 5.5 per cent in the financial year 2024-25 from 4.6 per cent expected in the financial year 2023-24. It was 6.3 per cent in the financial year 2022-23.