India’s retail inflation surges to 14-month high in October as vegetable prices soar
INDIA’S retail inflation surged to a 14-month high in October, driven by a jump in vegetable prices and dashing hopes of an interest rate cut by the central bank next month.
The annual retail inflation of 6.21 per cent in October breached the central bank’s tolerance band for the first time in more than a year, and was higher than the estimate of 5.81 per cent in a Reuters poll, government data released on Tuesday (Nov 12) showed.
The Reserve Bank of India (RBI) is mandated to keep inflation in a range of 2 to 6 per cent, with a medium term target of 4 per cent.
In September, inflation stood at 5.49 per cent, which was a nine-month high.
Rising food prices have reduced the purchasing power of middle-income households, affecting corporate earnings and hurting growth in Asia’s third-largest economy.
The central bank has forecast gross domestic product growth at 7.2 per cent for financial year 2024-2025 but private forecasters have started to pare estimates following signs of weakness in urban consumption.
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Despite this, high inflation will mean the central bank will likely delay an interest rate cut even though it changed its monetary policy stance to ‘neutral’ from ‘withdrawal of accommodation’ in October, signalling lower rates ahead.
“Today’s inflation print closes the door for a rate cut in the December policy by the RBI,” said Sakshi Gupta, principal economist, HDFC Bank.
“We see a possibility of a move only in the February policy,” said Gupta, adding that retail inflation for the current fiscal year was likely to overshoot the central bank’s forecast of 4.5 per cent.
Annual inflation for food items, which account for nearly half of the consumption basket, rose to 10.87 per cent from 9.24 per cent a month ago.
Vegetable prices rose 42.18 per cent in October from a year earlier after rising 36 per cent in September.
The inflation rate for cereals was 6.94 per cent compared to 6.84 per cent in September, while that for pulses was 7.43 per cent against 9.89 per cent a month earlier.
The inflation rate for oil and fats was 9.51 per cent compared to 2.47 per cent in the previous month, mostly due to an increase in edible oil prices.
Sequentially, prices of vegetables saw the sharpest jump.
“We do not expect food prices to correct before mid- November, thus preventing any meaningful moderation in the November CPI print,” said Garima Kapoor, an economist at Elara Securities.
Core inflation, which excludes volatile food and fuel prices, remained stable at close to 3.7 per cent in October.
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