CPI Inflation Eases To Three-Month Low Of 6.77% In October

Despite easing, headline inflation remains above the Reserve Bank of India’s upper target for the tenth straight month.

<div class="paragraphs"><p>(Source: Dennis Siqueira/Unsplash)</p></div>
(Source: Dennis Siqueira/Unsplash)

India’s retail inflation eased in October, after rising to a five-month high in September, led by a favourable base effect.

The Consumer Price Index inflation eased to 6.77% in October, from 7.41% in September, according to data released by the Ministry of Statistics and Programme Implementation, on Monday.

A Bloomberg poll of 34 economists had estimated a reading of 6.7%.

Inflation in food and beverages was at 7.04%, against 8.41% in September. Core inflation rose to 6.23% in October 2022, compared to 6.33% in September.

Despite easing, headline inflation remains above the Reserve Bank of India’s upper target for the tenth straight month.

Breach of the target for three straight quarters has meant that the central bank wrote to the central government explaining the failure, after it convened an additional meeting of the members early this month.

To quell inflation, the Monetary Policy Committee has raised the policy repo rate to 5.9% so far.

Most of the reduction in CPI inflation was due to favourable base effects even as CPI increased 0.8% sequentially, said Suvodeep Rakshit, senior economist at Kotak Institutional Equities.

The month-on-month increase was due to food, particularly vegetables and cereals, he said.

According to him, this could be a more persistent source of inflation, which will lead to a slow moderation.

"We expect CPI inflation to glide down gradually to around 6% by February 2023, and closer to 5% in March 2023," he said.

Rahul Bajoria, chief economist at Barclays concurred with the view that inflation is expected to gradually moderate into the target range. "Taking into account the available high-frequency prices and today’s data, we currently track November inflation at 6.5% year-on-year, largely driven by food prices," he said.

Inflation Internals

  • Cereal prices rose 12.08% annually in October, compared to 11.5% annually in September.

  • Inflation in meat and fish was at 3.08%, compared with 2.55% last month.

  • Inflation in milk was at 7.69%, compared with 7.13% in the previous month.

  • Inflation in oils and fats was at -2.15%, against 0.37% in September.

  • Vegetable prices rose 7.77% over a year earlier, compared with 18.05% in the previous month.

  • Pulses inflation was at 2.78%, compared with 3.05% in the preceding month.

  • Clothing and footwear inflation was at 10.16%, against 10.17% a month ago.

  • Housing inflation stood at 4.58%, compared with 4.57% in September.

  • Fuel and light inflation stood at 9.93% in October, against 10.39% in September.

What Drove The Dip?

On a sequential basis, vegetable inflation continued to soar as unseasonal rains in October hit production. However, oils and fats, and fruits saw a dip in prices on a sequential basis.

How Much Will The MPC Hike Next?

"Given the moderation in the domestic inflation trajectory, some incipient moderation in U.S. inflation, and possibility of a global slowdown, we expect the RBI to hike repo rate by 35 basis points to 6.25% in the December policy, followed by an extended pause to watch for the impact of past rate hikes, liquidity tightening and global macro scenario," Rakshit said.