Food and core drive down headline inflation

Inflation based on the Consumer Price Index (CPI) eased to a three-month low of 5.1% in January from 5.7% in December largely driven by lower food prices. However, a further drop in core inflation to 3.5% – a 50-month low – stole the limelight.

After persistently sprinting for two months, from 6.6% in October to 9.5% in December 2023, food inflation changed course this January and eased to 8.3% as inflation in food grains (pulses and cereals) cooled to 10.1% after averaging 12% over the past seven months. However, vegetable inflation remained high and rigid at ~27%.

The steep and broad-based disinflation in core inflation is both comforting and intriguing. Inflation in clothing and footwear is at a 38-month low, housing at a 35-month low, household goods and services at a 33-month low, health at a 41-month low, recreation and entertainment at an all-time low, and personal care and effects at a 23-month low. Though low input costs have contributed, the role of softer demand in keeping core inflation benign cannot be ruled out.