Parul
Retail inflation in India continued to ease through October, supported by a relative decline in some of the sub-indexes. The October consumer price index (CPI) came at a four-month low of 4.87 per cent against 5.02 per cent the previous month, official data showed. The retail inflation in India though is in RBI’s 2-6 per cent comfort level but is above the ideal 4 per cent scenario.
Barring the recent pauses, the RBI has raised the repo rate by 250 basis points cumulatively since May 2022 in the fight against inflation.
Raising interest rates is a monetary policy instrument that typically helps suppress demand in the economy, thereby helping the inflation rate decline.
Meanwhile, wholesale inflation in India based on the Wholesale Price Index continued to stay in the negative zone for the sixth straight month through September.
Data for October is due to be released anytime this week.
Talking about the CPI on a downward trajectory for the third straight month, Mohit Rahlan, CEO, TIW Capital says, core inflation has also trended down during this period. This lays the ground for RBI to remain on pause at its upcoming meetings, he says. “The central bank, though, will remain vigilant for any
food or fuel price shocks,”
Rajani Sinha, Chief Economist, CareEdge feels while this declining trend is comforting, it remains to be seen if it sustains, given the weak prospects for the Kharif harvest and the expected hit to Rabi sowing amid lower reservoir levels in major agricultural states.
“The first advanced estimate of Kharif crop production paints a grim picture for cereals and pulses output – categories witnessing sticky double-digit inflation. This poses an upside risk to the overall inflation outlook.risks tilted to the upside, the RBI is expected to maintain a hawkish policy tone in the upcoming monetary policy meeting.”
Suman Chowdhury, Chief Economist and Head – Research, Acuité Ratings & Research points out that despite CPI inflation has taken a dip, food inflation still continuous to almost at the same level at 6.6 per cent as compared to the Sep-23 print.
Vegetable prices have increased sequentially by 3.3 per cent primarily due to a spurt in onion prices seen over the last month.
Pulses inflation stood higher at 18.79 per cent YoY with a further sequential rise of 2.5 per cent. Cereal inflation also continues to be in double digits at 10.65 per cent YoY despite the steps taken by the government to cool down the market prices of wheat and rice. Given the concerns on the yield in the upcoming kharif crop and the El Nino phenomenon, the downside risks to food inflation remain.
Fuel and light inflation has been flattish largely due to the impact of the additional subsidy on LPG. Core inflation remains steady at around 4.7 per cent.
“We expect the headline inflation to average 5.6 per cent in FY24 and remain in the band of 5.0-5.5 per cent in the second half of the fiscal. While that will be largely in line with RBI projections, we believe that the geo-political risks in the background and the food output risks will keep the RBI MPC watchful and any reversal of the monetary policy stance is unlikely to happen before Q2FY24.”
Vivek Rathi, Director Research, Knight Frank India says, “This decrease (in inflation) aligns with the Reserve Bank of India’s (RBI) target range of +/-4 per cent, indicating the effectiveness of the decision to prioritise economic growth while maintaining a pause on monetary policy actions, particularly
regarding interest rate hikes after February 2023.”
“The stability in interest rates has played a crucial role in bolstering both consumer and business
confidence within the country, especially in the face of challenging geopolitical circumstances and a decelerating global economic environment. Despite these headwinds, the housing market in the country
continues to outperform its global counterparts, and the persistence of stable interest rates is expected to further stimulate demand in the housing sector.”
Dharmakirti Joshi, Chief Economist, CRISIL: “For the December quarter, we expect some softening in food inflation with the kharif harvest entering the market, aided by government intervention. Oil prices remain an unknown which could play spoilsport if the Middle East conflict escalates.”
“We expect the Reserve Bank of India to remain vigilant since headline inflation remains above the Monetary Policy Committee’s (MPC) 4 per cent target and risks to food and fuel persist. Our base case for this fiscal is an average inflation of 5.5 per cent and the MPC maintaining the policy rate and stance.”
