It was a twin bonanza for the economy last month as the Consumer Price Index (CPI) for September went down and the industrial production for July made a remarkable growth defying slowdown from the previous months. But, untimely rains and higher crude oil prices ruined the gains.
The October CPI inflation hit a seven-month high and WPI inflation a six-month high, driven by faster rises in prices of food and fuel products. Will the food inflation, which has also hit a seven-month high at 1.9%, shoot up further or go down? Economist Upasna Bhardwaj of Kotak Mahindra Bank says that food inflation typically subsides in winters and may not be much higher on a month-on-month basis.
The food inflation for October was recorded 1.9%, higher than September’s 1.25% and August’s 1.52%. The price of food shot up mainly due to unexpected rains, which destroyed crops. “The inflation was led by higher food and fuel prices and the surge was expected due to untimely disruptions due to rain,” Upasna Bhardwaj says, adding that the spike is moderating and is not as sharp as last year.
Last year, the food inflation was 3.32% in October, which went down to 2.11% in November, while the CPI inflation was 4.20% in October and 3.63% in November, low mainly due to demonetisation which dented consumer’s buying capacity. As visible in the chart, the food inflation remained typically higher in 2016. The food inflation showed a downward trend, moderate between September and October, and steeper between October and November as food inflation subsides in winters. This year, the food inflation, which went up in October due to unseasonal rains, is likely to go down in November.
While food inflation is one of the major factors in pushing the CPI inflation higher, it is too early to say how expected lower food prices in November is going to impact the November CPI inflation. “Inflation has ticked up in October, a shade higher than consensus and our expectations. Food inflation ticked up due to a combination of base effects and higher perishables. Non-food pressures are a bigger problem at hand, from multiple fronts, from the fuel angle if the oil price spike is sharp and sustained, coupled with one-off impact of rent allowance and GST impact,” DBS Group Radhika Rao told Reuters.
The uptick in CPI inflation in October has reduced further chances of a rate cut by the Reserve Bank of India in its monetary policy review meeting on December 6. The Reserve Bank had kept the repo rate unchanged in its latest monetary policy meet at 6%, given the predictions of rising headline inflation.