Informist, Wednesday, Nov. 13, 2024

NEW DELHI – The October CPI inflation print was so high that economists now fear that the full year headline print may be close to 5% instead of the Reserve Bank of India’s projection of 4.5% for 2024-25 (Apr-Mar).

Data released on Tuesday showed India’s CPI inflation jumped to a 14-month high of 6.21% in October against expectations of 5.9% as per an Informist poll. This was the first month since August 2023 that headline inflation was above the upper bound of the RBI’s medium-term target range of 2-6%. This was also the second month in a row when CPI inflation was above the central bank's 4% target after having come in below it in July and August.

Headline inflation rose mainly because of a sharp sequential uptick in food prices, particularly vegetables and edible oils. Food inflation rose to a 15-month high of 10.87% in October from 9.24% in September. Sequentially, the food price index rose 2.6% in October.

While inflation is expected to come down to below 6% in November, it is likely to exceed the RBI's forecast of 4.8% for Oct-Dec around 70 basis points, economists said. Data on 22 food items compiled by the Department of Consumer Affairs showed prices have risen 0.8% so far in November compared to October, when they had surged 4.9%.

Some economists also expect inflation in Jan-Mar to average higher than the central bank’s projection. “Headline inflation is tracking around 50 bps higher than RBI forecast for Q4 (Jan-Mar), even as miss for the current quarter could be nearly one percentage point,” ICICI Securities Primary Dealership said in a report on Wednesday.

Higher inflation in Oct-Mar would mean that inflation is very likely to exceed the central bank’s 4.5% projection. “The increase seen in edible oils along with lower mandi arrivals for onion and potato this year point to a scenario where winter decline in food inflation is not likely to be large enough to more than offset the increase seen upto now,” economists at ICICI Bank said in a report.

Apart from food prices, core inflation also rose to a 10-month high of 3.7% in October from 3.5% in September, driven by higher gold prices. Core inflation--which strips out food and fuel items--is expected to continue to rise through the rest of FY25.

“Core inflation could continue to inch gradually upwards towards 4.5% levels on the back of past increase in telecom tariffs and elevated price of precious metals,” QuantEco Research said in report. “However, pressure on corporate sales and earnings and likelihood of heightened global economic uncertainty could keep pricing pressure at moderate levels.” End

Reported by Shubham Rana

Edited by Vidhi Verma

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