(Reuters) – India’s retail inflation accelerated to 6.21% year-on-year in October, breaching the central bank’s target for the first time in more than a year, as food prices remained high, government data released on Tuesday showed.
Annual retail inflation was higher than the estimate of 5.81% in a Reuters poll of 45 economists. In September, inflation stood at 5.49%, a nine-month high.
COMMENT:
MADHAVI ARORA, LEAD ECONOMIST, EMKAY GLOBAL, MUMBAI
“Bad inflation print. The October inflation print is the last one before the RBI meets in December, and higher-than-expected third-quarter inflation will impact the RBI’s reaction function. This, along with the consistent downward pressure on the INR, makes the reason for not possible for RBI to cut in December.”
“Spillover from upcoming bond and FX volatility via the global financial market route will mean that financial stability objectives may take precedence over inflation management and thus may result in a wait-and-watch approach for some EM central banks, including the RBI.”
“While the current FY25 rate cut call is tough, we are in a shallower rate cut cycle in India, post-Fed.”
KUNAL KUNDU, INDIA ECONOMIST, SOCIETE GENERALE, BENGALURU
“Indian inflation rose beyond anyone’s expectations as a rise in onion prices pushed India’s headline inflation to breach the RBI’s upper tolerance limit of 6.0% for the first time in 14 months.”
“This has the potential to put paid to expectations of policy rate cuts by the central bank at its upcoming meeting in December.”
SHILAN SHAH, DEPUTY CHIEF EMERGING MARKETS ECONOMIST, CAPITAL ECONOMICS, LONDON
“Another jump larger than expected in the main consumer price inflation in the last month will be enough to convince the majority of MPC members that the conditions are not yet right to start an easing policy. We now think that the loosening cycle will start in April instead of December.”
“Therefore, it now seems very unlikely that the panel will reduce the interest rate at the December meeting as expected. We now predict the first 25 basis points cut to the repo rate (from 6.50% to 6.25%) will be realized in April; only at that time there will be evidence of sustainable inflation.
UPASNA BHARDWAJ, HEAD OF ECONOMY, KOTAK MAHINDRA BANK, MUMBAI
“The higher-than-expected CPI inflation has been largely led by higher vegetable prices but also an increase in core inflation.”
“We expect an uptick in food prices to keep headline inflation above 5% even in the next reading before the seasonal downturn begins to lower inflation.”
“We expect the RBI to remain on hold on its upcoming December policy before considering a cautious easing from February.”
DEVENDRA KUMAR PANT, CHIEF ECONOMIC, INDIA RATINGS AND RESEARCH, GURUGRAM
“A double food inflation after a gap of 14 months is definitely not good news for monetary authorities.”
“September and October vegetable inflation is due to a strong adverse base effect. Going forward, vegetable inflation is expected to decline due to favorable language effects and the start of the season.”
“We expect the status-quo in December 2024 monetary policy.”
GAURA SEN GUPTA, INDIAN ECONOMY, IDFC FIRST BANK, MUMBAI
“From a monetary policy perspective, the RBI is expected to remain on hold on December policy due to upside risks to the short-term inflation outlook.”
“Daily retail prices showed some reduction in vegetable prices in November, but not enough to counter the jump seen in the last few months. Third quarter CPI inflation is tracking closer to 6% than the RBI estimate of 4.8%.”
“Food inflationary pressure is expected to ease in the coming months with supply improvement. Kharif output is expected to be higher by 7%. That said, a strong reduction in food prices will be needed in the next few months for headline inflation to move towards the 4% target. % in Q4FY25.”
“We see significant upside risks to FY25 CPI inflation estimate and RBI’s 4.5%.
RADHIKA RAO, SENIOR ECONOMIC, DBS BANK, SINGAPORE
“The main cause of inflation in October was the cost of food, especially the 40% increase in staple vegetables and the increase in duty on oilseeds.”
“This reading will lift monthly inflation above the RBI’s projection for the second quarter in a row.”
“With core inflation also stiffening up in the month, and the rupee weighed by the rally of the greenback, any remnant expectations of a rate cut in December will be put to bed.”
BY MAZUMDAR, ECONOMY, BANK OF BARODA, MUMBAI
“CPI continues to surprise on the rise. Transitory shocks for food inflation, led by some volatile components, become more entrenched now. In particular, the price cycle for vegetable inflation has lasted for more than a year now.”
“A concrete supply management policy is needed, with a focus on addressing climate and logistics risks, to prevent a cobweb spiral in prices.”
“The outlook for food inflation looks bleak in the absence of new arrivals from Q3 onwards.”
SAKSHI GUPTA, PRINCIPAL ECONOMIST, HDFC BANK, GURUGRAM
“Core inflation has now come down as predicted and could go further in the coming months. This print will be the only one, and we continue to expect inflation to moderate again below 5% as the winter season sets in. and during the harvest season the market is hot.”
“That said, today’s inflation print closes the door to cut rates in the December policy by the RBI. We see the possibility of a move only in the February policy.”
“Even given the continued inflationary pressures and rising global uncertainty following the US election results, the February rate cut by the RBI is not complete. We see average inflation at 4.7% for FY25 and at 5.4% for Q3 FY25 – overshooting RBI’s projections. .”
GARIMA KAPOOR, ECONOMICS, INSTITUTIONAL EQUITIES, ELARA SECURITIES, MUMBAI
“India’s retail CPI inflation rose to a 14-month high of 6.21%, vs. our estimate of 6.1%, as food prices continued to rise amid adverse weather, supply disruptions, and damage to perishable crops.”
“We do not expect food prices to correct before mid-November, thus preventing any meaningful moderation in the November CPI print.”
“Today’s CPI print, amid a sharp depreciation of the rupee, heralds a December rate cut for the RBI even as domestic consumption demand eases.”
