India's headline inflation, based on monthly WPI, declined 7.18% in December 2012 as compared to 7.24% for the previous month. It was slightly below with market expectations of 7.3%.
CRISIL Research believes that continued moderation in core inflation created downward pressure on overall inflation, offsetting the impact of a sharp rise in primary food inflation to 11.2% in December. Core inflation as measured by non-food manufacturing inflation declined for a fourth consecutive month and stood at 4.2% in December, down from a peak of 5.8% in August 2012.
CRISIL Core Inflation Indicator (CCII) also declined to 5.5% in December from 5.7% in November. Despite rising input costs due to a weak rupee and fuel price revisions, core inflation has continued to moderate. This is indicative of the limited pricing power of corporates due to slowing demand in the economy.
In 2013-14, CRISIL Research expects average WPI inflation to moderate to 7% from 7.7% forecast for 2012-13. Easing of inflationary pressures is premised on the expectation of higher agricultural output (assuming normal monsoons), a stronger rupee and lower international crude oil prices.
''Moreover, demand-side pressures are expected to remain weak due to the lagged impact of a sharp slowdown in GDP growth this fiscal year. In view of a sustained moderation in core inflation over the last 4 months and anticipation of a lower core going ahead, we expect the RBI to cut policy rates by 25 bps in its monetary policy review on Jan. 29, 2013,'' it said.