The inflation reading for October dropped to 4.87% on the back of broad-based decline in core and fuel inflation. Meanwhile food inflation remained unchanged despite underlying mixed trend. The Kharif harvest and the impact of the geopolitical tension on the crude prices are the key factors to watch going forward. Economists believe that based on these numbers, a relaxation in the monetary policy by the RBI next month or the next few months is unlikely.
Dharmakirti Joshi , Chief Economist, Crisil believes, “A base that turns adverse (inflation had seen a drop in the year-ago period) will somewhat restrict the downside to inflation for two months. The decline in core inflation was broad-based, indicating lower input cost pressures on producers and hence, on retail prices. Food inflation saw mixed trend. For the December quarter, we expect some softening in food inflation with the Kharif harvest entering the market, aided by government intervention. Oil prices remain an unknown which could play spoilsport if the Middle East conflict escalates.
Nikhil Gupta, Chief Economist, MOFSL Group pointed out that “Headline CPI-inflation eased to 4.9% YoY last month broadly in line with the market forecast of 4.8% and our expectation of 4.9%. Food inflation was unchanged at 6.6% YoY in October, implying the core inflation softened to 43-month of 4.3%. Going forward, we believe that headline inflation has troughed. We expect it to rise to 5.5-6% in November-December and stabilise at 5.2% in Q4FY24. Thus, we don’t see any relaxation in the monetary policy by the RBI next month or the next few months.”
Crisil’s Joshi added that they “expect the Reserve Bank of India to remain vigilant since headline inflation remains above the Monetary Policy Committee’s (MPC) 4% target and risks to food and fuel persist. Our base case for this fiscal is average inflation of 5.5% and the MPC maintaining the policy rate and stance.”
Nish Bhatt, Founder & CEO, of Millwood Kane International believes that “Going forward the impact of the El Nino phenomenon, geopolitical risk, upcoming kharif crop and the food output needs to be monitored for any policy stance.”