Inflation jumps to 14-month high in October

India’s headline retail inflation rose to a 14-month high of 6.21% in October driven by a sharp jump in food prices, especially vegetables, official data showed on Tuesday. This may force the Reserve Bank of India (RBI) to further delay interest rate cuts.

New Delhi: India’s headline retail inflation rose to a 14-month high of 6.21 per cent in October driven by a sharp jump in food prices, especially vegetables, official data showed on Tuesday. This may force the Reserve Bank of India (RBI) to further delay interest rate cuts.

Many analysts were expecting the RBI’s Monetary Policy Committee to cut rates at its next meeting in December, especially after a change in stance in the October meeting.

However, there has been a sharp increase in inflationary pressure in the past two months. Consumer Price Index-based (CPI) inflation, which was within the central bank’s median target of 4 per cent during July-August period, jumped to 5.49 per cent in September. The October number has breached the RBI’s upper tolerance limit for the first time since August 2023.

“With headline inflation above the upper end of the RBI's tolerance band, the MPC will remain cautious and is likely to maintain status quo on policy rates in the December meeting,” said Rajani Sinha, Chief Economist, CareEdge.

Food inflation, which makes up around half of the CPI basket, surged to 10.87 per cent in October from 9.24 per cent in September and 5.66 per cent in August, official data showed on Tuesday.

Prices of vegetables surged by 42.18 per cent year-on-year during the month, while fruits became costlier by 8.43 per cent and pulses by 7.43 per cent.

Last month, the MPC changed its policy stance to “neutral” from “withdrawal of accommodation” raising hope for rate cuts. Its next meeting is scheduled for December 4-6.

“Double digit food inflation after a gap of 14 months is certainly not good news for the monetary authority,” said Paras Jasrai, Senior Economic Analyst at India Ratings.

“Inflation is only likely to dip from January onwards, but this will be driven by base effects. We are now less hopeful of a February rate cut. We believe the first rate cut is now effectively pushed back beyond Feb 2025,” said Soumya Kanti Ghosh, Group Chief Economic Adviser, State Bank of India.

The gap between urban and rural consumers’ inflation trends was sharp for the eighth consecutive month, with rural households paying 1.07 per cent higher than urban India.

This is because the rural basket of food items’ weightage (54.2 per cent) is higher than the urban weightage (36.3 per cent), said Ghosh, who is also a member of the 16th Finance Commission.  

Core inflation jumped to a 10-month high of 3.67 per cent in October. A large part of the increase in core inflation is due to telecom tariff hike and gold price increase, said Jasrai.

Among the states, Chhattisgarh clocked the highest inflation rate of 8.8 per cent in October followed by Bihar at 7.9 per cent and Odisha at 7.5 per cent. In Karnataka, the rate stood at 5.91 per cent, lower than the all-India inflation rate. With 4.01 per cent, Delhi witnessed the lowest inflation during the month under review.

Highlights - Pinching the pocket Food inflation surges to 10.87 per cent in Oct from 9.24 per cent in Sept and 5.66 per cent in August  Veggie prices surge by 42.18 per cent y-o-y during the month, while fruits became costlier by 8.43 per cent and pulses by 7.43 per cent Core inflation at 10-month high in October, driven mainly by telecom tariff hike and gold price increase Chhattisgarh clocked the highest inflation rate of 8.8 per cent in Oct followed by Bihar at 7.9 per cent. K'taka recorded 5.91 per cent.

Quote - Inflation is only likely to dip from January onwards but this will be driven by base effects. We are now less hopeful of a February rate cut. We believe the first rate cut is now effectively pushed back beyond Feb 2025 - Soumya Kanti Ghosh Group Chief Economic Adviser SBI