India Inflation January 2023

India: Inflation rises more than expected in January

Inflation increased to 6.5% in January from December’s 5.7%. January’s result was the highest since October 2022 and exceeded market expectations of 6.0%. It was largely driven by food prices, which rose 5.9% year-on-year in January (December: 4.2% yoy).

The trend was unchanged, with annual average inflation in January coming in at December’s 6.7%. Meanwhile, core inflation edged up to 6.2% in January from 6.1% in December.

Lastly, consumer prices increased 0.46% month-on-month in January, contrasting with the 0.45% mom drop recorded in December. January’s uptick was the highest reading since October 2022.

Although headline inflation rose more than expected, core inflation was broadly stable. Looking ahead, our panelists expect inflation to continue declining this year on a tougher base effect, weakening economic activity and cooling commodity prices. Key factors to watch include this season’s wheat crop, monetary policy, currency fluctuations, the Russia-Ukraine grain deal and changes in export controls for key agricultural commodities.

Analysts at Nomura said:

“We expect headline inflation to remain around January levels in February, while core inflation is likely to inch lower but remain sticky ~6%. Headline and core inflation should moderate to 5.6-5.7% in March and track closer to 5% from April onwards. We expect headline inflation to average 4.8% in FY24, and core CPI ~5%.”

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