India’s October retail inflation is expected to be in the range of 4.6-4.9% due to easing food inflation, providing assurance to the Reserve Bank of India to maintain stable interest rates.
Thanks to easing food inflation, India’s October retail inflation, or consumer price index (CPI)-based inflation, is expected to come in the range of 4.6-4.9 per cent. This continued descent in inflation rates will provide the Reserve Bank of India (RBI) with a sense of assurance, enabling them to maintain interest rates at a stable level over the coming months, as suggested by experts.
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According to a Mint poll of 17 economists, India’s retail inflation likely cooled to 4.8 per cent in October from 5 per cent in September. However, economists warned that vegetable prices still pose an upside risk to their forecasts.
According to a Reuters poll, India’s consumer price inflation may have eased further to a four-month low of 4.80 per cent in October, slower than 5.02 per cent in September, as per the November 6-9 Reuters poll of 53 economists.
While inflation is showing signs of further easing experts, economists point out that vegetable prices remain a risk and can cause a spike in inflation in coming months. Besides, fluctuations in crude oil prices are also major concerns amid geopolitical tensions.
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Rahul Bajoria, MD & Head of EM Asia (ex-China) Economics, Barclays, underscored that CPI inflation slowed further to 4.6 per cent year-on-year (YoY) in October as food inflation continued to ease, but this reprieve is likely to be fleeting, as onion prices are climbing.
“Pressures from non-perishable food prices also persist. Core inflation was broadly stable, supported by easing momentum and base effects. The first advance estimates of kharif production showed lower production of pulses, cereals and sugar (down 3-10 per cent YoY), which could signal that upward pressure on food prices may remain in the near term,” said Bajoria.
“We expect food inflation to print 5.3 per cent for October (September: 6.3 per cent). Based on our estimates, food prices rose by 0.1 per cent month-on-month, with deflation in vegetable and oilseed prices, but increases in prices of all other food items. That said, the momentum in non-vegetable prices is expected to moderate compared with September. Still, the double-digit inflation in non-perishable items, such as cereals, spices and particularly pulses, is proving to be quite persistent,” Bajoria said.
Bajoria highlighted that the persistent rise in onion prices is another near-term pressure point on food inflation. But since the price rise is not as sharp as seen in tomato prices earlier, and other vegetable prices are contained, the impact on headline CPI may not be very strong compared to what was seen in July-August.
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“We expect fuel and light inflation to rise moderately, to 0.3 per cent YoY, after slipping into deflation in September (-0.1 per cent). The sequential rise in retail kerosene prices likely contributed to the increase (though less than in September). LPG prices are unchanged month-on-month, but since they are lower YoY (since last month when the price cut of ₹200 per cylinder came into effect) fuel inflation print should be subdued.
V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services believes the declining trend in CPI may continue taking the October CPI print to 4.9 per cent. The decline in vegetable and edible oil prices can facilitate the downward shift in CPI inflation. The decline in Brent crude from the September high of $96 to around $80 now is a big relief.
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“The RBI is safely placed since India’s growth momentum is strong and CPI inflation is within the central bank’s target range. Forex reserves of around $600 billion and the Fed having paused in the rate hiking cycle, there is no pressure on the RBI. High-frequency data indicate that the Indian economy is cruising towards 6.5 per cent GDP growth in FY 24. This macro construct of robust growth with macro stability allows the MPC to wait with no rate action in the coming policy meet,” said Vijayakumar.
Deepak Jasani, Head of Retail Research at HDFC Securities said October inflation could come in at the same or slightly lower level than that in September (5 per cent).
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However, Jasani believes onion prices could pull up this number going forward. Still, this could be within the 5-6 per cent inflation estimated by the RBI for the October-December quarter. This number by itself may not influence the RBI to move away from its stance of pausing the rates, said Jasani.
Sujan Hajra, Chief Economist & Executive Director at Anand Rathi Shares and Stock Brokers expects the CPI inflation figure for Oct’23 to moderate to 4.5 per cent, continuing its decelerating trajectory from last month.
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“While the cooling down effect from elevated food prices and LPG price cuts played a major role in the stark disinflation observed in Sep’23, the pace of disinflation is likely to slow down for food with the fuel and light category coming out of deflation observed last month,” Hajra said.
Hajra underscored that the sequential cooling down in CPI will instill some confidence in RBI but it is too early for RBI to initiate any policy cuts. Thus, they are likely to keep their stance on both the policy and liquidity front unchanged.
