CPI Inflation In October 2022: India’s retail inflation in October eased to a three-month low of 6.77 per cent, according to the latest official data. Inflation in rural areas in October 2022 cooled to 6.98 per cent, while that in urban areas softened to 6.50 per cent.
However, it is the 10th month that the Consumer Price Index (CPI)-based inflation has remained above the Reserve Bank of India’s (RBI) upper tolerance limit of 6 per cent. In September, India’s retail inflation had accelerated to a five-month high of 7.41 per cent. Before that, the retail inflation had stood at 7.04 per cent in May, 7.01 per cent in June, 6.71 per cent in July, and 7 per cent in August.
According to the latest data from the National Statistical Office (NSO), inflation in the food basket, or the Consumer Food Price Index, decelerated to 7.01 per cent in October this year, compared with 8.60 per cent in September. The food inflation is responsible for nearly half the CPI basket.
Suvodeep Rakshit, senior economist at Kotak Institutional Equities, said, “CPI inflation in October reduced by 65 bps from the September print. Most of it was due to favourable base effects even as sequentially CPI increased by 0.8 per cent. Most of the month-on-month increase was due to food, particularly vegetables and cereals. This could be a bit more persistent source of inflation which will lead to a slow moderation.”
Rakshit added that core inflation remained at around 6.3 per cent with momentum remaining towards the upside.
On the food inflation, ICRA chief economist Aditi Nayar said 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 7.01 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,” Nayar said.
Kotak’s Rakshit said he expects CPI inflation to glide down gradually to around 6 per cent by February 2023 and closer to 5 per cent in March 2023.
“Given the moderation in the domestic inflation trajectory, some incipient moderation in US inflation, and possibility of a global slowdown, we expect the RBI to hike repo rate by 35 bps to 6.25 per cent in the December policy followed by an extended pause to watch for the impact of past rate hikes, liquidity tightening, and global macro scenario,” he said.
The RBI’s Monetary Policy Committee last week (November 4) to discuss and draft a report for the government on why the central bank has failed to keep retail inflation below the target of 6 per cent for three consecutive quarters since January this year.
The RBI has raised the key repo rate by 190 basis points since May this year. In May, the central bank conducted its off-cycle monetary policy review to hike the repo rate by 40 bps to control inflation. The next RBI’s Monetary Policy Committee meeting is expected to meet on December 5-7, 2022.
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