India’s retail inflation fell again in October low of 4.87%

India: In a recent revelation by the Ministry of Statistics and Programme Implementation, India’s headline retail inflation for October came in at 4.87 percent, a decline from the September Consumer Price Index (CPI) inflation print of 5.02 percent. Analysts had anticipated a year-on-year rise of approximately 4.8 percent, aligning closely with the actual figure.

India Inflation

While the fall in inflation can be attributed to a favorable base effect and decreasing prices of certain items, the surge in onion prices acted as a counterbalance, restricting the extent of the decline. This marks a crucial development as headline inflation has now hovered above the medium-term target of 4 percent for an unprecedented 49 consecutive months, even though it remains within the Reserve Bank of India’s tolerance range of 2-6 percent for the second consecutive month.

The month-on-month data reveals intriguing dynamics within the various sectors. Notably, eggs experienced a 3.4 percent increase, while pulses rose by 2.5 percent and cereals by 0.8 percent. In contrast, edible oils saw a 0.8 percent decline. Despite these fluctuations, food inflation remained relatively stable at 6.61 percent in October, a marginal change from September’s 6.62 percent.

Beyond the realm of food, other sectors demonstrated subdued price momentum. The housing index experienced a 0.9 percent month-on-month rise, while the ‘clothing and footwear’ and ‘miscellaneous’ categories posted sequential increases of 0.4 percent and 0.1 percent, respectively.

This contributed to a decrease in core inflation, dropping from 4.5 percent in September to 4.2 percent in October, indicating a lack of generalized price pressures.

Gaura Sen Gupta, India Economist at IDFC First Bank, noted, “The moderation in core inflation indicates that generalization of price pressures has not taken place.”

Looking ahead, experts anticipate a potential rise in inflation for November and December, driven by an unfavourable base effect. Aditi Nayar, Chief Economist at ICRA, predicts a climb to 5.6 percent by December, with inflation maintaining a range of 4.9-5.6 percent in the subsequent two quarters. Despite these projections, opinions differ on the impact on the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC).

While current trends suggest potential undershooting of the RBI’s inflation forecast, IDFC First Bank’s Sen Gupta speculates that the MPC may maintain the repo rate at 6.5 percent until the middle of 2024-25. Similarly, ICRA’s Nayar expects the MPC to retain a hawkish tone in the upcoming meeting from December 6-8, keeping the repo rate and stance unchanged.

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