Retail inflation hits 4-month low in Oct

NEW DELHI :Retail inflation fell to a four-month low of 4.87% in October as food prices eased, prompting expectations that the central bank may yet again keep policy rates unchanged at its monetary policy review next month.

Consumer Price Index (CPI)-based inflation stood at 5.02% in September, remaining within the Reserve Bank of India’s (RBI’s) comfort zone of 2-6% for the second consecutive month. In October 2022, retail inflation stood at 6.77%.

A Mint poll of 17 economists estimated India’s retail inflation to cool to 4.8% in October; however, they believe volatile vegetable prices could still upset forecasts.

Food inflation, measured by the Consumer Food Price Index, which accounts for nearly half of the overall consumer price basket, slowed to 6.61% in October from 7.01% a year earlier. Food inflation was at 6.62% in September, according to data released by the ministry of statistics and programme implementation.

Reduction in food and cooking gas prices led to lower retail inflation in October, said N.R. Bhanumurthy, VC at Dr. B.R. Ambedkar School of Economics University, Bengaluru.

Last month, the Union cabinet approved a hike of ₹100 for cooking gas subsidy under the Pradhan Mantri Ujjwala Yojana (PMUY), helping beneficiaries get a total subsidy of ₹300 per LPG cylinder at market price.

However, an increase in international oil prices due to the conflicts in Israel and Ukraine and further volatility in food prices, especially of staple vegetables like onions and tomatoes, and pulses, continue to pose inflationary risks, Bhanumurthy said.

“RBI’s decision on the interest rate (during its bi-monthly monetary policy meeting in December) will depend on several factors, including the exchange rate and oil prices. We expect the status quo to continue as RBI’s decision will also depend on the US Fed and European Central Bank’s decision on interest rates,” he added.

At its latest rate-setting meeting in October, the central bank kept the repo rate unchanged at 6.5%. Earlier this month, the US Federal Reserve held the key interest rate in a target range between 5.25%-5.5%, where it has been since July.

Similarly, in late October, the European Central Bank ended its run of interest rate hikes when it kept the interest rates unchanged at 4% after 10 consecutive hikes that began in July 2022. “In my opinion, RBI may wait this time to ensure the US Fed maintains its rate pause during its mid-December meeting in the best interest of the Rupee’s stability. Assuming the Fed maintains its stance, I expect the first rate cut in India in Q4 FY24,” said Debopam Chaudhuri, chief economist at Piramal Enterprises Ltd.

However, Chaudhuri cautioned that if food prices turn volatile in the coming months, retail inflation could soar again.

“Indian agriculture continues to depend largely on rain-fed irrigation, making the prevailing El Nino conditions a significant threat. However, supply-side disruptions like these may not entirely be in the realm of monetary policy, with rate hikes having minimal transmission impact to control high food prices caused by low productivity,” he added.

Meanwhile, among states, Chhattisgarh and Delhi reported the slowest retail inflation during October at 2.44% and 2.48%, respectively, while states such as Odisha (6.47%), Rajasthan (6.25%), Haryana (6.02%) and Karnataka (5.63%) recorded the fastest price rice.

Interestingly, Chhattisgarh and Rajasthan are due for elections in the coming months. Inflation often plays a key role in voting patterns. The variation in food prices across states is due to differences in prices of food items like fruits and vegetables.