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Published: November 14, 2023
Updated: November 14, 2023

India's Retail Inflation Dips: October Records a 5-Month Low at 4.87%

India experienced a notable decline in headline retail inflation to 4.87% in October, marking a five-month low. The Ministry of Statistics and Programme Implementation's data attributes this drop to a favourable base effect and cooling prices of certain commodities. However, rising onion prices counteracted this descent.

Inflation Overview:

The Consumer Price Index (CPI) inflation, at 4.87%, aligned with economists' predictions of a 4.8% year-on-year increase. While within the Reserve Bank of India's (RBI) 2-6% tolerance range for the second consecutive month, inflation has persistently exceeded the 4% medium-term target for 49 months.

Inflation Internals:

October's inflation dynamics were largely as anticipated. Vegetable prices, driven by a 15% sequential rise in onion prices, led to a 3.4% month-on-month increase in the food category. Notably, while potato prices remained unchanged, tomato prices fell by 19% MoM.

Category-wise Changes:

● CPI: 4.87% (0.7% change)
● Food: 6.61% (1.1% change)
● Cereals: 10.65% (0.8% change)
● Vegetables: 2.70% (3.4% change)
● Pulses: 18.79% (2.5% change)
● Clothing,Footwear: 4.31% (0.4% change)
● Housing: 3.80% (0.9% change)
● Fuel, Light: -0.39% (0.3% change)
● Miscellaneous: 4.40% (0.1% change)

Core Inflation and Policy Impact:

Core inflation, excluding food and fuel, decreased to 4.2% from 4.5% in September, indicating a moderation in generalized price pressures. Despite headline inflation falling below 5%, it is anticipated to rise in November and December due to an unfavourable base effect.

Policy Outlook:

According to Aditi Nayar, Chief Economist at ICRA, CPI inflation is expected to average 5.6% in the current quarter, aligning with the RBI's forecast. While trends suggest the RBI's forecast might be undershot, the Monetary Policy Committee (MPC) is likely to maintain a hawkish stance. Gaura Sen Gupta from IDFC First Bank predicts that the repo rate might remain at 6.5% until the middle of 2024-25.

India's inflation scenario in October showcased a delicate balance influenced by diverse factors. While a brief respite was observed, the anticipation of a rise in the coming months keeps the policy outlook cautious, with the MPC likely to remain vigilant in its approach.