New Delhi: Retail inflation is expected to rise to around 1.5% in December as year-on-year inflation has likely bottomed out, driven by unfavourable base effects, a gradual unwinding of food deflation in the coming months and a fading disinflationary impact of goods and services tax (GST) cuts, according to Nomura. In FY26, inflation will average 1.9%, it said, slightly below the Reserve Bank of India's (RBI) estimate of 2%.
Retail inflation edged up to 0.7% year-on-year in November from a record-low of 0.3% in October, reflecting lower food prices and GST rationalisation. "Overall, the CPI data suggest a continuation of the past trends, with low food inflation and subdued core," said Nomura. It noted that the impact of GST cuts is likely waning, with only a few items recording further price decline. "A more muted decline in prices in November suggests a waning impact of GST cuts."
Nomura expects further policy easing by the monetary policy committee (MPC) of the RBI.
While it anticipates policy rates will remain unchanged at the February MPC meeting, it sees scope for a 25 basis points rate cut in April, which would take the terminal repo rate to 5%. In the December meeting, the MPC reduced the policy repo rate by 25 bps to 5.25%.
The easing cycle is not over, as other indicators suggest the output gap remains negative, real interest rates are still high, and the recent rise in inflation is largely driven by base effects, said Nomura.