India inflation likely eased below 4% in February for the first time in six months: Reuters poll

Customers buy fruits and vegetables at an open air evening market in Ahmedabad, India, August 21, 2023. REUTERS

India's February consumer inflation likely eased below the Reserve Bank of India's medium-term target of 4.0% for the first time in six months on moderating food price rises, a Reuters poll showed, bolstering expectations of interest rate cuts.

As fresh winter produce hit markets over the past few months, food items - which make up nearly half of the inflation basket - saw a sustained slowdown in price increases.

That marked a welcome reprieve from supply disruptions last year when unpredictable monsoons and intense heat waves sent food prices soaring, often by double digits.

A Reuters poll of 45 economists taken March 4–10 predicted inflation as measured by the annual change in the consumer price index fell to 3.98% in February from 4.31% in January.

Forecasts for the data, set to be released on March 12 at 1030 GMT, ranged from 3.40% to 4.65%, with nearly 70% of respondents expecting it to come in at or below the RBI's medium-term target of 4.0%. Only five predicted it would exceed January's reading.

"We see a continued slowdown in vegetable price rises," said Gaura Sengupta, chief economist at IDFC First Bank.

"The other, even more positive fact is that we are also seeing softness in pulse prices as well as cereals, which are the most sticky part of food inflation because their harvest season is not as frequent."

With inflation comfortably within the RBI's 2–6% target range, economists say the central bank is likely gearing up for another interest rate cut in April to support slowing economic growth, following a quarter-point reduction in February.

A separate Reuters poll showed it would be a short and shallow rate-cutting cycle.

Meanwhile, warnings from the India Meteorological Department, opens new tab that summer and heatwaves could start early have raised concerns that inflation could rise again once winter supplies start to run out.

"We do expect the correction in vegetable prices to start reversing possibly as early as March, with risks from heatwaves and weather-related disruptions to crops," wrote Rahul Bajoria, India & ASEAN economist at Bank of America.

His team projects headline CPI inflation at 4.8% this fiscal year but expects it to edge down to 4.1% in the next year, with risks evenly balanced from lower commodity prices and a weaker rupee.

That's in line with predictions of 4.8% and 4.3% in a Reuters poll conducted last month.

Core inflation, which excludes the more volatile food and energy components, was expected to have inched up slightly to 3.82% year-on-year in February from January's estimated 3.70%.

Wholesale price index-based inflation was expected to have risen to 2.36% in February from 2.31% in January, the survey showed.