(Reuters) -India’s retail inflation in October accelerated to 6.21% year-on-year, breaching the central bank’s target range for the first time in over a year, as food prices remained stubbornly high, government data released on Tuesday showed.
The annual retail inflation was higher than the estimate of 5.81% in a Reuters poll of 45 economists. In September, inflation stood at 5.49%, which was a nine-month high.
COMMENTARY:
MADHAVI ARORA, LEAD ECONOMIST, EMKAY GLOBAL, MUMBAI
“Nasty inflation print. October inflation print is the last one before the RBI meets in December, and the higher-than-expected third-quarter inflation will likely impact the RBI’s reaction function. This, in conjunction with consistent downward pressure on the INR, makes an uncompelling reason for the RBI to cut in December.”
“The spillover of impending bond and FX volatility via the global financial markets route would mean that the aim of financial stability may even precede inflation management and thus may merit a wait-and-watch approach for some EM central banks, including the RBI.”
“While the FY25 rate-cut call is tricky now, we are in for a shallower rate-cut cycle in India ahead, following the Fed.”
KUNAL KUNDU, INDIA ECONOMIST, SOCIETE GENERALE, BENGALURU
“India’s inflation surged way beyond anybody’s expectations as skyrocketing onion prices enabled India’s headline inflation to breach the RBI’s upper tolerance limit of 6.0% for the first time in 14 months.”
“This potentially puts paid to any hopes of a policy rate cut by the central bank in its upcoming meeting in December.”
SHILAN SHAH, DEPUTY CHIEF EMERGING MARKETS ECONOMIST, CAPITAL ECONOMICS, LONDON
“Another bigger-than-expected jump in headline consumer price inflation last month will be enough to convince a majority of MPC members that conditions are not yet right to begin easing policy. We now think that the loosening cycle will begin in April rather than December.”
“As such, it now appears highly unlikely that the panel will reduce interest rates in the December meeting as we had been expecting. We now forecast the first 25 basis point cut to the repo rate (from 6.50% to 6.25%) to materialise in April; it is only by then that there will be enough evidence of inflation falling back sustainably.”
UPASNA BHARDWAJ, CHIEF ECONOMIST, KOTAK MAHINDRA BANK, MUMBAI
“The sharply higher-than-expected CPI inflation has largely been led by a surge in vegetable prices but also a sharp pickup in core inflation.”
“We expect the uptick in food prices to keep the headline inflation higher than 5% even in the next reading before a seasonal downturn begins to bring down inflation.”
“We expect the RBI to stay on hold in the upcoming December policy before considering a cautious easing from February.”
DEVENDRA KUMAR PANT, CHIEF ECONOMIST, INDIA RATINGS AND RESEARCH, GURUGRAM
“Double-digit food inflation after a gap of 14 months is certainly not good news for the monetary authority.”
“September and October vegetable inflation was due to a strong adverse base effect. Going forward, vegetable inflation is expected to decline due to a favourable base effect and the onset of winter.”
“We expect a status-quo on the December 2024 monetary policy.”
GAURA SEN GUPTA, INDIA ECONOMIST, IDFC FIRST BANK, MUMBAI
“From a monetary policy perspective, RBI is expected to remain on pause in the December policy due to upside risks to near-term inflation outlook.”
“Daily retail prices indicate some reduction in vegetable prices in November, but it is not enough to counter the jump seen in the last few months. Third-quarter CPI inflation is tracking closer to 6% versus RBI’s estimate of 4.8%.”
“Food inflation pressures are expected to ease in the coming months with improvements in supplies. Kharif output is expected to be higher by 7%. That said, a strong reduction in food prices will be needed in the next few months for headline inflation to move towards the 4% target in Q4FY25.”
“We see significant upside risk to our and RBI’s FY25 CPI inflation estimate of 4.5%.”
RADHIKA RAO, SENIOR ECONOMIST, DBS BANK, SINGAPORE
“The key culprit behind the spike in inflation in October was food costs, especially the over 40% increase in staple vegetables and pass-through of duty increases on oilseeds.”
“This reading will lift the quarterly inflation above the RBI’s projection for the second consecutive quarter.”
“With core inflation also stiffening up in the month, and the rupee weighed by a greenback rally, any remnant expectations of a rate cut in December will be put to bed.”
DIPANWITA MAZUMDAR, ECONOMIST, BANK OF BARODA, MUMBAI
“CPI continued to surprise on the upside. The transitory shocks to food inflation, led by a few volatile components, are becoming more entrenched now. Especially, the price cycle for vegetable inflation has lasted for more than a year now.”
“Concrete supply management policies are needed, with a focus on tackling climate risks and logistics, to deter the cobweb spiral in prices.”
“Outlook for food inflation doesn’t seem to be getting much comfort unless fresh arrivals enter from Q3 onwards.”
SAKSHI GUPTA, PRINCIPAL ECONOMIST, HDFC BANK, GURUGRAM
“Core inflation has now bottomed out as we had predicted and could inch further up in the coming months. This print is likely to be a one-off, and we continue to expect inflation to moderate back below 5% once the winter season sets in and with the arrival of the summer crop in the market.”
“That said, today’s inflation print closes the door for a rate cut in the December policy by the RBI. We see a possibility of a move only in the February policy.”
“Although given lingering inflationary pressures and the rising global uncertainty after the US election results, a February rate cut by the RBI is not a done deal. We see inflation averaging at 4.7% for FY25 and at 5.4% for Q3 FY25 — overshooting the RBI’s projections.”
GARIMA KAPOOR, ECONOMIST, INSTITUTIONAL EQUITIES, ELARA SECURITIES, MUMBAI
“India’s retail CPI inflation rose to a 14-month high of 6.21%, vs our estimate of 6.1%, as food prices continued to rise amid inclement weather, supply disruptions, and damage to perishable crops.”
“We do not expect food prices to correct before mid- November, thus preventing any meaningful moderation in the November CPI print.”
“Today’s CPI print, amid sharp depreciation of the rupee, rules out a December rate cut for RBI even though domestic consumption demand is easing.”
(Reporting by Siddhi Nayak in Mumbai; Hritam Mukherjee, Nishit Navin, Kashish Tandon, Yagnoseni Das, Dimpal Gulwani, Anuran Sadhu, Chris Thomas in Bengaluru; Editing by Abinaya Vijayaraghavan)
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