Will India's inflation accelerate by the end of 2024? Consumer price increases may hit multi-month highs

India’s consumer inflation rate in December may accelerate, according to the latest survey of economists by The Wall Street Journal. The data is expected to rise year-over-year to 1.6%, a significant increase from 0.7% in November. This change indicates that inflationary pressures in India are gradually building.

Main Drivers of Accelerating Inflation

What is driving this round of inflation? Analysis by Barclays points to two main factors. First is the rise in food prices, which is usually the most direct factor affecting consumer prices. Second, gold prices have recently performed strongly, exerting a notable upward pull on India’s Consumer Price Index. Additionally, unfavorable base effects in statistics are amplifying this trend.

Elevated Gold and Silver Prices Impact Prices

ABN AMRO further notes that although overall price pressures in the economy remain manageable, the high prices of gold and silver have a significant impact on consumer inflation. As traditional safe-haven assets, their price fluctuations can quickly transmit to the consumer side, thereby materially boosting inflation data.

Central Bank Policy May Shift

Interestingly, the rising inflation expectations may actually support the Reserve Bank of India in maintaining an accommodative policy. ABN AMRO believes that the central bank might consider further rate cuts in the future to counteract slowing economic growth. This seemingly contradictory policy stance actually reflects the RBI’s prioritization of economic growth considerations.

Relevant data will be officially released on Monday, providing a clearer picture of India’s economic outlook.