Retail inflation eased to a four-month low of 5.22 per cent in December against 5.48 per cent in November, driven by a moderation in food prices.

The Consumer Price Index (CPI)-based inflation, which measures changes in retail prices, stood at 5.69 per cent in December 2023.

Food inflation, a major contributor to overall CPI, slowed to 8.39 per cent in December from 9.04 per cent in November and 9.53 per cent in December 2023.

Key food items such as vegetables, cereals and pulses saw significant price moderation.

Vegetable prices showed notable cooling, with inflation falling to 26.56 per cent in December from 29.33 per cent in November. Certain food items continued to exhibit sharp year-on-year increases. Potato prices surged 68 per cent, while edible oil inflation rose 14.6 per cent.

Core inflation, which excludes volatile food and fuel prices, also edged lower, easing to 3.6 per cent from 3.7 per cent in November.

Analysts noted that the decline in food inflation was the primary driver of the overall moderation.

The easing in inflation comes after retail inflation surged to a 14-month high of 6.21 per cent in October, breaching the RBI’s upper tolerance limit. While inflation has since moderated, the central bank remains cautious.

Last month, the RBI raised its inflation projection for the current fiscal to 4.8 per cent from 4.5 per cent, citing lingering pressures on food prices and potential risks from global commodity markets.

Economists expect further relief in food prices in the coming months, supported by a robust rabi crop and favourable seasonal trends.

“The CPI inflation decline was driven by a seasonal slide in vegetable prices and a strong rabi sowing season,” said Suman Chowdhury, chief economist at Acuité Ratings. However, uncertainties around global commodity prices, especially crude oil, and the recent depreciation of the rupee pose challenges.

Analysts are divided on the possibility of a policy rate cut at the RBI’s February meeting. While moderating inflation provides some scope, sticky core inflation and global risks could prompt the central bank to maintain its current rates.