October retail inflation likely at 14-month highs on sharp spike in food prices

India’s retail inflation, based on the Consumer Price Index (CPI), likely rose to a 14-month high of 5.9% in October primarily due to a sharp rise in the prices of vegetables and edible oils, according to a median of 17 estimates by economists.

CPI inflation in September was 5.49% and 4.87% in October 2023. At 5.9%, the retail inflation index likely rose 1% sequentially during October, higher than the 0.7% increase recorded, on average, in the past 11 years. The National Statistical Office (NSO) will release the official data for October on Tuesday.

“Episodes of strong unseasonal rains have impacted the costs of perishables this month, along with the passthrough of import tax hikes on oilseeds,” said Radhika Rao, senior economist, DBS Bank. “These factors are expected to push the Q3FY25 quarterly inflation above the Reserve Bank of India’s (RBI) projection, exceeding 5% compared to the official forecast of 4.8% YoY,” she added.

Core inflation, meanwhile, likely remained elevated in October due to the unfavourable base effect and higher metal prices. “Core inflation is estimated at 3.7% in October, reflecting continued rise in gold prices. In the remainder of FY25 (Nov-Mar), it is expected to average at 4.2%, remaining relatively moderate,” said Gaura Sen Gupta, chief economist, IDFC FIRST Bank.

An upward trajectory of core inflation, coupled with food price pressures, is expected to delay rate cuts in the next couple of monetary policy meetings, economists say.

On Wednesday, RBI governor Shaktikanta Das had said that although the Monetary Policy Committee (MPC) had shifted towards a neutral stance to spur growth, this did not mean that an interest rate cut would happen “immediately”. He had pointed out there are still significant upside risks to inflation and a rate cut at this stage would be “very risky”.

Abhishek Upadhyay, senior economist, ICICI Securities Primary Dealership said: “From a monetary policy standpoint, RBI may also wish to fade some of the pressure that may be led by one off factors. However, there is no case to be rushing towards rate cuts either.”

During October, prices of edible oils and vegetables (mainly tomatoes) shot up by 9% and 13%, on a month-on-month basis, respectively. Cereals prices increased by 0.5% and pulses prices remained flat.

Tomato prices spiked in October due to disruption in the supply caused by rainfall in key producing states like Karnataka and Maharashtra. But in November, prices have moderated on account of arrival of fresh supplies from Madhya Pradesh and Himachal Pradesh.

In November, edible oil prices are up by 2.8% on month, while vegetable prices are down by 2.7%. “Higher global edible oil prices and the recent hike in the basic customs duty of various edible oil prices will keep inflation in edible oil higher given their import dependence,” said Rajani Sinha, chief economist, CareEdge Ratings. In mid-September, the government had hiked the basic customs duty of various edible oils to 20% from nil to support domestic oilseed prices.