India’s CPI Inflation Drops Below RBI’s Tolerance Limit for First Time in 14 Months

In April 2023, India’s consumer price index (CPI) inflation dropped significantly to 4.7%, falling below the Reserve Bank of India’s upper tolerance limit of 6%. This marks the first time in 14 months that inflation has been within the upper limit. The lower inflation rate suggests that the RBI may pause on future rate hikes or potentially cut rates, as inflation is now below their upper target.

In comparison to March 2023, where the CPI was at 5.66%, the CPI in April 2023 stood at 4.7%. However, a year ago in April, the CPI was at 7.79%.

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The RBI has been facing inflation above its upper tolerance limit of 6% since January 2022. To combat this, the bank adopted a forceful rate hike cycle from its May 2022 to February 2023 policies.

The drop in CPI is attributed to a significant decrease in food inflation, which was at 3.84% in April 2023, compared to 8.31% in the same month the previous year. In March 2023, food inflation was at 4.79%.

The CPI for April 2023 was measured at 178.1, with food inflation recorded at 175.9. In terms of specific categories, the inflation rate for food and beverages was 4.22%, while pan, tobacco, and intoxicants recorded a rate of 3.46%. Additionally, the inflation rate for clothing and footwear was measured at 7.47%.

Moreover, housing inflation stood at 4.91%, and fuel and light inflation came in at 5.52% in April. Miscellaneous inflation was recorded at 4.92%.

The Ministry of Statistics & Programme Implementation gathered price data from 1114 urban markets and 1181 villages across all States/UTs using personal visits by NSO, MoSPI’s Field Operations Division on a weekly roster.

In April 2023, NSO collected prices from almost all villages and urban markets, with market-wise prices reported at 89.90% for rural and 93.14% for urban areas.

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Vivek Goel, Co-founder and Joint Managing Director, commented on the latest inflation print, stating that the drop in inflation was expected due to a favourable base and is likely to continue in the coming months. According to Vivek Goel, the recent CPI data, coupled with the decrease in core inflation to 5.3%, allows the MPC to maintain its pause on rate hikes during the June policy meeting. Despite this positive development, Goel cautioned that the MPC must remain vigilant regarding potential risks from unfavorable weather conditions that may impact food inflation, as well as potential volatility in oil prices.

According to Nish Bhatt, Founder & CEO of Millwood Kane International, a stable crude oil price trajectory and a favorable monsoon season can assist in controlling inflation in the future. As this is the last inflation print before the MPC’s review meeting in June, this development can enable the central bank to maintain an extended pause.

The RBI adopted a strategic pause in the rate hike cycle during the April 2023 policy meeting, keeping a close eye on the inflation prints. The current policy repo rate of RBI stands at 6.50%, while the SDF rate was maintained at 6.25%. Additionally, both the MSF rate and the Bank Rate remained unchanged at 6.75%.