October Sees India’s Retail Inflation Hit 14-Month Peak Amidst Rising Vegetable Prices
October Sees India's Retail Inflation Hit 14-Month Peak Amidst Rising Vegetable Prices.
India’s retail inflation reached a 14-month peak in October, largely due to a rise in vegetable prices, which dashed expectations for a potential interest rate reduction by the central bank next month. The annual retail inflation rate was reported at 6.21% in October, exceeding the central bank’s acceptable range for the first time in over a year and surpassing the 5.81% forecast from a Reuters poll, according to government data released on Tuesday. The Reserve Bank of India (RBI) aims to maintain inflation within a 2%-6% range, with a medium-term goal of 4%. In September, inflation was recorded at 5.49%, marking a nine-month high. Increasing food prices have diminished the purchasing power of middle-income families, impacting corporate profits and hindering growth in Asia’s third-largest economy. While the central bank projects GDP growth of 7.2% for the financial year 2024-25, private analysts have begun to lower their forecasts due to signs of weakness in urban consumer spending.
Even with this situation, the high inflation rates are expected to lead the central bank to postpone any interest rate cuts, despite its shift in monetary policy from ‘withdrawal of accommodation’ to ‘neutral’ in October, suggesting lower rates may be on the horizon. “Today’s inflation print closes the door for a rate cut in the December policy by the RBI,” stated Sakshi Gupta, principal economist at HDFC Bank. She mentioned that a potential rate cut might only occur in the February policy meeting, adding that the retail inflation for the current fiscal year is likely to exceed the central bank’s forecast of 4.5%.
Annual inflation for food items, which comprise nearly half of the consumption basket, increased to 10.87% from 9.24% the previous month. Vegetable prices surged by 42.18% in October compared to a year earlier, following a 36% rise in September. The inflation rate for cereals was recorded at 6.94%, slightly up from 6.84% in September, while the rate for pulses decreased to 7.43% from 9.89% a month earlier. Additionally, the inflation rate for oils and fats jumped to 9.51% from 2.47% in the previous month, mainly due to rising edible oil prices.
Vegetable prices experienced the largest increase. Garima Kapoor, an economist at Elara Securities, noted that food prices are unlikely to decline before mid-November, which will hinder any significant decrease in the November Consumer Price Index (CPI). Meanwhile, core inflation, which excludes the fluctuating food and fuel prices, remained steady at around 3.7% in October.
