The headline retail inflation rate in India declined to a three-month low of 6.77 per cent in October from 7.41 per cent in the previous months on a favourable base effect, according to data released on Monday by the ministry of statistics and programme implementation revealed.
The latest Consumer Price Index (CPI) inflation at 6.77 per cent is broadly along expected lines. The Reserve Bank of India (RBI) also expected inflation to decline. Governor Shaktikanta Das on Sunday at an event said the central bank saw CPI inflation falling below 7 per cent in October. Despite the sizeable drop in inflation in October, the rate remains above the 6 per cent upper limit of the RBI’s 2-6 per cent tolerance band.
On November 3, the RBI’s Monetary Policy Committee (MPC) convened for the first time since the monetary policy framework came into effect about six years ago, an out-of-sequence meeting to debate and produce the report that would be given to the government for failing to uphold the inflation mandate. The public has yet to be given access to more information about the conference.
Aditi Nayar, chief economist, ICRA, said, “The dip in the CPI inflation to a sub-7 per cent reading in October 2022 has offered relief, with the print only marginally exceeding expectations (6.7 per cent) and recording a healthy sequential moderation from 7.4 per cent in the previous month. A favourable base effect and a sequential downtick in the prices of fruits and oils and fats helped to cool food and beverages inflation to 7.0 per cent in October 2022, in spite of the impact of the unseasonal rainfall on vegetables. The total area sown under the ongoing rabi season has risen by 16.5 per cent YoY as on Nov 4, 2022, driven by rice, wheat, pulses, and oilseeds, auguring well for prices going ahead. Additionally, a high base is likely to limit a hardening in the YoY food inflation in H2 FY2023, even though perishables’ prices may remain firm in the immediate term.”
She added, “Within miscellaneous items, health, education and personal care and effects reported a rise in the YoY inflation in October 2022 relative to the previous month, which suggests caution is warranted regarding the pace with which inflation will cool going ahead. The near-term inflation outlook is clouded by a few risks such as the recent sequential rise in prices of global commodities, supply disruptions for perishables owing to excess rains, and a robust demand for services. Nevertheless, a high base is expected to aid in further softening the YoY CPI inflation to 6.0 per cent in November 2022.” Nayar added that with the CPI inflation remaining solidly above the MPC’s 6 per cent tolerance level in Oct 2022, we believe that another rate hike is certain in the Dec 2022 policy. However, its size is likely to be tempered to 35 bps, from the 50 bps seen in the last three reviews, given the moderation in CPI inflation in Oct 2022 and the expectations of a further dip in Nov 2022.
According to a separate report, Morgan Stanley expects India’s retail inflation to track within the RBI’s target band by March 2023.
Meanwhile, the wholesale price-based inflation (WPI) also declined to a 19-month low of 8.39 per cent in October, on easing prices of fuel and manufactured items, according to a release by the government on Monday. This is the first time in 19 months that WPI inflation print has come in single digit. The last was in March 2021 at 7.89 per cent.
According to the release, decline in the rate of inflation in October, 2022 is primarily contributed by fall in the price of mineral oils, basic metals, fabricated metal products, except machinery, and equipment; textiles; other non-metallic mineral products, minerals etc.