Retail inflation, based on the Consumer Price Index (CPI), rose to a 14-month high of 6.21% in October from 5.49% in September, thanks to a sharp rise in prices of key food items, such as vegetables–mainly tomatoes–and edible oils, official data released on Tuesday showed.
Besides food, an uptick in core inflation also pushed up the headline print, dashing hopes of a rate cut by the Reserve Bank of India (RBI) in December.
The inflation print was way higher than expectations of analysts, and breached the upper band of the RBI’s tolerance range after a gap of 13 months. An FE poll of 17 economists had pegged the October’s CPI figure at 5.9%.
CPI inflation in rural areas stood at 6.68% in October, and in urban areas, at 5.62%. Meanwhile, on a sequential basis, the retail inflation index increased by 1.3%, the highest pace in three months.
In October, core CPI, which excludes items of food and fuel, climbed to a 10-month high of 3.7% from 3.5% in September.
Analysts now expect the RBI to consider cautious monetary easing from February, though the outlook is rather uncertain, especially given the chances of a spurt in global commodity prices.
“While it was widely expected that inflation will remain high, the print of above 6% could mean that the MPC will push back on any easing in the policy,” said Akhil Mittal, senior fund manager-fixed income, Tata Asset Management. “We do not expect any rate cut in the upcoming December policy, and going forward, it will be a function of unfolding growth and inflation trajectory,” he said.
DK Pant, chief economist at India Ratings and Research (Ind-Ra), said that to achieve the RBI’s inflation forecast of 4.8% in Q3FY25, inflation in November and December has to average 4.1%, which “appears difficult”. Most economists expect the November inflation to be in the range of 5-5.5%.
“An uptick in food prices is expected to keep the headline inflation higher than 5% even in the next reading before a seasonal downturn begins to bring down inflation,” said Upasna Bhardwaj, chief economist at Kotak Mahindra Bank.
During October, food inflation surged to a 15-month high of 10.87%, driven by a sharp jump in inflation rates of vegetables (42.18% from 35.99% in September) and oils and fats (9.51% from 2.51% in September). Cereals inflation, too, increased, although slightly, to 6.94% in October from 6.84% a month ago.
Tomato inflation in October skyrocketed to 161.27% (vs 42.9% September), due to disruption in its supply caused by rainfall in key producing states, such as Karnataka and Maharashtra. But in November, prices have moderated on account of arrival of fresh supplies from Madhya Pradesh and Himachal Pradesh. In the coming months, vegetable inflation is likely to moderate on account of a favourable base effect and the onset of winter, say analysts.
However, edible oil prices are unlikely to cool down anytime soon, given India’s import dependence on the commodity. The government had hiked the basic customs duty for various kinds of crude edible oils to 20% from nil in mid-September, and for refined oils to 32.5% from 12.5% to support domestic oilseeds farmers.
“It is crucial to manage food inflation, as it directly impacts household inflation expectations. This situation also underscores the need for the government to implement additional supply-side measures to stabilise food prices,” said Rajani Sinha, chief economist at CareEdge Ratings.
That said, looking ahead, the arrival of the fresh harvest is expected to ease inflationary pressures on food prices. The outlook for rabi sowing is promising, with reservoir levels across most regions remaining higher than last year, except in certain northern states such as Punjab and Himachal Pradesh, say economists.
Additionally, subdued global commodity prices amid concerns over slower global demand is likely to aid moderation of the headline inflation going ahead. In October, the global commodity price index declined by 4.3% year-on-year, while Brent crude prices fell by 15% yo-y, Sinha said.