Sub-4% core inflation betrays weak demand conditions, say economists

THE RESERVE BANK OF India's (RBI) monetary policy action may be credited for reducing core Consumer Price Index (CPI) inflation in the recent months, but a sub-4% core print also denotes weak demand conditions at an aggregate level, say economists.

- PRIYANSH VERMA

This is also a bit at odds with the RBI's assessment in its November bulletin that "investment demand appears to be resilient given the government's infrastructure spending, an uptick in private capex and digitalisation." It had also expressed concerns about another possible spell of demand pull inflation.

Data released on Friday showed that core CPI inflation fell to a 48month low of 3.9% in December from 4.1% in November, while CPI inflation rose to a four-month high of 5.69% from 5.55%.

"While India's tight monetary policy action can be credited for weakening core inflation, we also see clear signs of persistence of household stress too playing its part," said Kunal Kundu, India economist, Societe Generale.

The RBI has kept the policy repo rate unchanged since February 2022 at 6.50%. In the December monetary policy meet, RBI had said that core disinflation has been "steady", indicative of the impact of past monetary policy actions.

ICICI Bank said lower core inflation is explained by a decline in global commodity and energy prices and the resultant passthrough into the economy with "muted consumption".