India’s Oct retail inflation eases to 6.77% y/y

BENGALURU (Reuters) – India’s annual retail inflation eased to 6.77% in October helped by slower rises in food prices and base effect, but remained above central bank’s tolerance limit, strengthening views of lower rate hikes when it meets for policy review in December.

Annual retail inflation in October was higher than the 6.73% forecast by economists in a Reuters poll, and below 7.41% the previous month, data released by the National Statistics Office on Monday showed.

Food inflation, which accounts for nearly 40% of the CPI basket, rose 7.01% in October compared to 8.60% in September.

Month on month retail inflation rose 0.80% in October compared to the previous month while retail food inflation rose 1.08% – reflecting inflationary pressures in the economy.

COMMENTARY

SONAL BADHAN, ECONOMIST, BANK OF BARODA, MUMBAI

“We expect CPI (YoY) to moderate further in the coming months as well on account of base effect and declining international commodity prices. However, movement in food prices will have to be closely watched, in particular vegetables, cereals, and pulses, owing to unseasonal domestic rains and rising international food prices (wheat).”

“On a MoM basis, pressure is seeing a build-up in case of vegetables, fruits, and oils. Cereals and pulses may also come under pressure in the coming months. Among others, prices of transportation, personal care effects, and housing saw a MoM increase in October 2022.” 

“Assuming international commodity prices do not present a negative surprise, base effect will help cool down inflation more quickly from December 2022 onwards.”

“We are expecting a 35bps hike in December 2022 and see the terminal repo rate at 6.5% in March 2022.”

SAKSHI GUPTA, PRINCIPAL ECONOMIST, HDFC BANK, GURUGRAM

“Inflation moderated in October, broadly supported by a high base effect from last year. Core inflation continued to remain sticky at 6%. Going forward, as food inflation moderates in the winter season and favourable base effects continue to play out, headline inflation is likely to tread closer to 6% over the coming months. The Reserve Bank of India (RBI) is not done with its rate hikes as of yet and is likely to hike by another 25bps-35bps in December, and possibly by another 25bps in February, taking the terminal rate closer to 6.5%. However, clearly, we seem to be nearing the end of the rate hiking cycle.”

KUNAL KUNDU, INDIA ECONOMIST, SOCIETE GENERALE, BENGALURU

“The base effect-driven easing of headline inflation does not herald the beginning of easing inflationary cycle. We believe it will be the base effect that will push inflation once again to beyond 7% starting from December once the favourable effect turns decisively adverse and the headline inflation likely potentially testing the April high during February (if not earlier).”

“Stubbornly high core inflation (the highest reading in eight years and rising), despite the lower headline print is indicative of the fact that price pressure is not going to go away in a hurry.”

“Eventually, starting from 2Q23, inflation will meaningfully ease and India will likely experience a sustained disinflationary trend (rather than the yo-yo movement one is getting used to of late), albeit with a slope that is flatter. Food inflation too will follow a similar pattern as the headline inflation.”

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