Retail inflation rises to 14-month high of 6.2% in October

Inflation for September

India’s retail inflation rose to a 14-month high of 6.2 percent in October compared with 5.5 percent in the previous month, as food inflation galloped on the back of rising vegetable prices.

The October reading, was above the Moneycontrol poll median of 5.9 percent from 15 forecasts, and breached RBI’s upper band target of 6 percent for the first time in over a year, raising fears that the Reserve Bank of India may hold rates for the eleventh consecutive time at its meeting in December.

"With the CPI inflation breaching the 6% mark in October 2024 and expected to exceed the MPC's estimate for Q3 FY2025 by at least 60-70 bps, a rate cut in the December 2024 policy review appears ruled out, in spite of our projection of a sub-7 percent GDP growth print for Q2 FY2025. We anticipate that a shallow rate cut cycle of 50 bps may commence in February 2025 or later," said Aditi Nayar, chief economist, ICRA.

Food inflation rose by double digits for the first time in fifteen months to 10.9 percent from 9.2 percent in the previous month, according to data released by the government on November 12.

Rising vegetable prices contributed to food inflation, as vegetable inflation rose to a near five year high of 42.4 percent.

Tomato inflation was up 161.3 percent in October compared with 42.9 percent in the previous month, while garlic (82.5 percent), potato (64.9 percent) and onion inflation (51.8 percent) all remained in high double digits.

The government's imposition of customs duty on oil also contributed to higher prices, with refined oil prices rising 10.4 percent in October compared with a 0.3 percent deflation in September.

Coconut oil prices were up 34.5 percent compared with 23.9 percent.

The reprieve for the government was further easing in pulses inflation, which declined to 17-month low of 7.4 percent and rice inflation, which fell to a 26-month low.

Economists contend that inflation is likely to remain elevated in November as well, pushing the full year estimate higher than RBI's forecast of 4.5 percent.

"November CPI inflation will likely soften to 5.4 percent+ with easing vegetable prices. That said, 3QFY25 CPI inflation is tracking higher at 5.5-5.6% compared to RBI’s forecast of 4.8 percent, while full-year FY25 inflation now tracking ~4.85 percent compared to RBI’s forecast of 4.5percent," said Madhavi Arora, chief economist, Emkay Global.

Core inflation in October also registered an increase on the back of higher gold inflation.

"Barring health, services inflation increased and hardened to an 11-month high in October 2024 and has added to the problem of RBI," said Paras Jasrai, senior analyst, Icra.