India’s Retail Inflation Eases to 4-Month Low of 4.87% in October

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In accordance with expectations, India’s headline inflation rate tumbled to a five-month low of 4.87% in October 2023, a decline from 5.02% in September 2023. This decline is attributed to a favorable base effect and price moderation for certain commodities, as per data released by the Ministry of Statistics and Programme Implementation (MoSPI).

In rural India, retail inflation in October stood at 5.12%, a decrease from 5.33% in the previous month. Meanwhile, urban India witnessed a retail inflation rate of 4.62%, marginally lower than 4.65% in September 2023. The CPI (general) index climbed to 185.3 in October 2023 from 184.1 in the previous month. The rural and urban inflation indices correspondingly rose to 187 and 183.4. Consumer Food Price Index (CFPI) was recorded at 190.4, with rural and urban CFPI rising to 188.0 and 194.7, respectively.

This marks the second consecutive month that retail inflation has remained within the RBI’s target band of 2-6%. Among food items, vegetable inflation was recorded at 2.70%, pulses and products at 18.79%, spices at 22.76%, cereals and products at 10.65%, and egg at 9.30%.

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Retail inflation for food and beverages stood at 6.24%, pan, tobacco, and intoxicants at 3.87%, clothing at 4.45%, and footwear at 3.59%. Health, education, and personal care and effects saw retail inflation at 5.88%, 5.07%, and 7.84%, respectively.

In the central bank’s monthly bulletin for October 2023, Reserve Bank of India (RBI) Governor Shaktikanta Das clarified that the RBI’s inflation target was to bring it down to 4%, not merely maintain it within the 2-6% range.

“Our aim is to align inflation with the target on a sustainable basis while supporting growth,” said Das. He further explained that the declining trend in inflation was interrupted in July-August 2023 due to price shocks in certain food items. He also highlighted the uncertainty surrounding the inflation outlook due to volatile energy and food prices amid geopolitical tensions and adverse weather conditions.

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Das observed that the global economy was “slowing” under tight financial conditions, protracted geopolitical tensions, and increasing geoeconomic fragmentation. “Global trade is contracting. Headline inflation is easing but remains above the target in major economies.”

According to Das, major central banks were signaling a “peaking of their rate hike cycle”. However, there were indications that the “tight monetary policy stance could persist for longer” than initially anticipated. “Sovereign bond yields have firmed up, the US dollar has appreciated, and global equity markets have corrected.”

In his inflation outlook, Das projected that while “near-term inflation is expected to soften” due to vegetable price correction, particularly in tomatoes, and the reduction in LPG prices, the future trajectory would depend on various factors, including demand-supply mismatches, El Niño conditions, and others.

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The RBI has projected CPI inflation at 5.4% for 2023-24, with Q2 at 6.4%, Q3 at 5.6%, and Q4 at 5.2%. CPI inflation for Q1:2024-25 is projected at 5.2%.

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