NEW DELHI, Nov 12 (Reuters) – India’s retail inflation, opens new tab in October accelerated to 6.21% year-on-year, breaching the central bank’s target range for the first time in over a year, as food prices remained stubbornly high, government data released on Tuesday showed.
The annual retail inflation was higher than the estimate of 5.81% in a Reuters poll of 45 economists. In September, inflation stood at 5.49%, which was a nine-month high.
The Reserve Bank of India (RBI) is mandated to keep inflation in a range of 2%-6%, with a medium term target of 4%.
Annual inflation for food items, which account for nearly half of the consumption basket, rose to 10.87% from 9.24% a month ago.
India’s retail inflation, which peaked at 7.79% in April 2022, eased after the RBI’s monetary policy committee raised rates and the government took measures to improve supplies.
However, rising food prices have reduced the purchasing power of lower-income households, affecting festive season sales this year.
Vegetable prices rose 42.18% in October from a year earlier after rising 36% in September.
The inflation rate for cereals was 6.94% compared to 6.84% in September, while that for pulses was 7.43% against 9.89% a month earlier.
The inflation rate for oil and fats was 9.51% compared to 2.47% in the previous month, mostly due to an increase in edible oil prices.
COMMENTARY:
RADHIKA RAO, SENIOR ECONOMIST, DBS BANK, SINGAPORE
“The key culprit behind the spike in inflation in October was food costs, especially the over 40% increase in staple vegetables and pass-through of duty increases in oilseeds.”
“This reading will lift the quarterly inflation above the RBI’s projection for the second consecutive quarter.”
“With core inflation also stiffening up in the month, and rupee weighed by a greenback rally, any remnant expectations of a rate cut in December will be put to bed.”
DIPANWITA MAZUMDAR, ECONOMIST, BANK OF BARODA, MUMBAI
“CPI continued to surprise on the upside. The transitory shocks to food inflation led by few volatile components are becoming more entrenched now. Especially, the price cycle for vegetable inflation has lasted for more than a year now.”
“Concrete supply management policies are needed with focus on tackling climate risks and logistics to deter the cobweb spiral in prices.”
“Outlook for food inflation doesn’t seem to be getting much comfort unless fresh arrivals enter from Q3 onwards.”
SAKSHI GUPTA, PRINCIPAL ECONOMIST, HDFC BANK, GURUGRAM
“Core inflation now has bottomed out as we had predicted and could inch further up in the coming months. This print is likely to be a one-off and we continue to expect inflation to moderate back below 5% once the winter season sets in and with the arrival of the summer crop in the market.”
“That said, Today’s inflation print closes the door for a rate cut in the December policy by the RBI. We see a possibility of a move only in the February policy.”
“Although given lingering inflationary pressures and the rising global uncertainty after the US election results, a February rate cut by the RBI is not a done deal. We see inflation averaging at 4.7% for FY25 and at 5.4% for Q3 FY25 — overshooting the RBI’s projections.”
GARIMA KAPOOR, ECONOMIST, INSTITUTIONAL EQUITIES, ELARA SECURITIES, MUMBAI
“India retail CPI inflation rose to a 14-month high of 6.21% vs our estimate of 6.1% as food prices continued to rise amid inclement weather, supply disruptions and damages to perishable crops.”
“We do not expect food prices to correct before mid- November, thus preventing any meaningful moderation in the November CPI print.”
“Today’s CPI print amid sharp depreciation of the rupee rules out December rate cut for RBI even though domestic consumption demand is easing.”
