India’s retail inflation cooled to 6.77% in October from 7.41% in September, slipping below the 7% mark for the first time in three months and only the second time since April’s eight-year high mark of 7.8%.
This is the tenth month in a row that inflation has been over the 6% upper tolerance threshold mandated for the Reserve Bank of India (RBI). The last time consumer price inflation was below the 7% mark was in July, at 6.71%.
Economists expect the central bank’s Monetary Policy Committee, which earlier this month deliberated on explaining to the government its inability to meet the inflation target for three successive quarters, to continue interest rate hikes in December, but at a lower pace than the 50 basis points increases in its last three reviews. One basis point equals 0.01%.
Rural consumers continued to face 7% inflation in October, slightly lower than the 7.6% in September, while urban India consumers’ price rise eased to 6.5% from 7.3% in the previous month.
Inflation measured by the Consumer Food Price Index moderated from 8.6% in September to 7% in October, but rural households faced 7.3% inflation while the same rate was 6.5% for their urban counterparts.
The Finance Ministry attributed the significant decline in retail inflation in October mainly to a decrease in food price inflation, driven significantly by “the decline in prices of vegetables, fruits, pulses and oils & fats.
“Prices of commodities like crude oil, iron ore & steel sobered in global markets. This, coupled with measures taken by the Govt. to rationalise tariff structures of major inputs to augment domestic supply, helped to keep cost-push inflation in consumer items under control,” it said in a statement.
The impact of Trade-related measures taken by the Government on wheat and rice to keep domestic supplies steady and curb the rise in prices, is expected to be felt more significantly in the coming months, the Ministry said.
“Rural India has witnessed higher inflation as food prices are higher here and have a higher share in the basket,” explained Bank of Baroda chief economist Madan Sabnavis. Food prices remain a risk to the inflation trajectory as vegetable prices and cereals have increased and don’t show signs of moderating right now, he added.
On a sequential basis, the Consumer Price Index was 0.8% higher in October compared to September, while the Consumer Food Price Index was up 1.1%.
Cereals inflation remained sticky, rising from 11.53% in September to 12.1% in October, with rural India facing nearly 12.7% inflation. Similarly, vegetables inflation dropped sharply to 7.8% from 18.05% in September, with urban and rural consumers seeing prices rise 6.6% and 8.45%, respectively.
Inflation in clothing and footwear, which has been over 8% since last December, remained virtually unchanged around 10.2%, with footwear price inflations staying over 12%.
Fuel and light inflation dropped a shade to 9.93% in October after being above the 10% mark for four months, but was 11% for urban households compared to 9.2% for rural India.
“Given that the RBI had given an explanation on inflation to the government, we do expect it to continue to increase the repo rate, albeit by a smaller quantity of 25-35 basis points (bps) in the coming policy to be in tune with what other central banks are doing,” Mr. Sabnavis reckoned.
ICRA’s chief economist Aditi Nayar expects the RBI to hike rates by about 35 bps and expects inflation to soften further to 6% in November thanks to a high base, even though the near-term outlook is clouded by risks such as higher global commodity prices and supply disruptions for perishable items due to excessive rains.