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Informist, Friday, Nov. 8, 2024

 

By Shubham Rana

 

NEW DELHI - India's headline inflation rate likely rose to a 14-month high of 5.9% in October led by a surge in food prices, according to an Informist poll of 20 economists. At 5.9%, it would be the second month in a row that CPI inflation would be above the Reserve Bank of India's medium-term target of 4?ter having come in below it in July and August.

 

Headline retail inflation shot up to a nine-month high of 5.49% in September on the back of an unfavourable base effect and higher food prices. It was 4.87% in October 2023.

 

In a new move, the National Statistical Office will release CPI inflation data for October at 1600 IST on Tuesday, 90 minutes earlier than usual. The new publication time will also be followed for the monthly Index of Industrial Production data from now on.

 

Estimates of economists surveyed by Informist were in a wide range of more than 100 basis points, with the highest being 6.26%. If retail inflation tops the 6% mark for October, it will be for the time since August 2023. To be sure, inflation is expected to have remained elevated in October, with RBI Governor Shaktikanta Das warning on Wednesday that it would be "very high" and possibly higher than in September.

 

FOOD PRICE RISK

Inflation is likely to have risen in October primarily due to an increase in food prices, which continued to climb after food and beverage inflation surged to 8.36% in September from 5.30% the previous month. According to Teresa John, deputy head of research and economist at Nirmal Bang Institutional Equities, food and beverage inflation may have risen further to 9.6% last month.

 

"We pencil in a 9% MoM (month-on-month) rise in vegetable prices led by a 39% MoM increase in prices of tomatoes," John said in a note. "Oils and fats are also seeing a sustained rise in prices."

 

According to data from the Department of Consumer Affairs, retail prices of tomato jumped 39.2% on month in October, while those of onion were up 6.2%. Prices of edible oils and wheat rose 4.2-12.7% and 1.5%, respectively. The government had in September raised import duty on crude and refined edible oils.

 

Economists expect core inflation, which excludes food and fuel items, to have risen slightly in October to 3.6-3.7% from 3.5% in September due to higher gold prices and an up-tick in housing inflation.

 

POLICY REPERCUSSIONS

The October inflation print will be the last one available to the Monetary Policy Committee before it meets Dec. 4-6. An inflation print of 5.9% in October would mean it would have to decline significantly in November and December to meet the RBI's projection of 4.8% for Oct-Dec. November will have to do much of the heavy lifting in this regard as the base effect turns unfavourable again in December and remains so until March, albeit to a lesser degree.

 

With the RBI working overtime to contain the market's rate cut hopes--Governor Das this week said it should not be assumed the MPC changing its stance to neutral from withdrawal of accommodation on Oct. 9 will necessarily be followed by a repo rate cut on Dec. 6--economists are already postponing their calls.

 

"We push out our first RBI rate cut call from December to February," HSBC economists Pranjul Bhandari and Aayushi Chaudhary said in a note Thursday. "A few better activity prints in October, thus far, have lowered the urgency to cut, though several others indicate that easing will be needed down the line,” they added.

 

However, several economists and market participants continue to see the repo rate being lowered for the first time in four-and-a-half years in December policy meeting due to differences in their assessment of growth conditions.

 

The following is a summary of the poll on CPI inflation in October:

 

Range of expectations: 5.2-6.26%

Mean: 5.9%

Median: 5.9%

Mode: 5.7%

 

ORGANISATION	CPI INFLATION ESTIMATE
Acuite Ratings and Research	5.2%
Societe Generale	5.4%
Bank of Baroda	5.7%
Barclays	5.7%
India Ratings and Research	5.7%
RBL Bank	5.72%
CareEdge Ratings	5.8%
Motilal Oswal Financial Services	5.8%
YES Bank	5.82%
ICICI Bank	5.88%
HSBC	5.9%
Sunidhi Securities	5.91%
ICRA	6.0%
IDFC FIRST Bank	6.0%
Standard Chartered	6.0%
State Bank of India	6.04%
HDFC Bank	6.1%
Union Bank of India	6.15%
Nirmal Bang Institutional Equities	6.2%
ICICI Securities Primary Dealership	6.26%

 

End

 

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Edited by Vandana Hingorani

 

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