E-Paper
Retail inflation eases to three-month low of 6.77%
Retail and wholesale inflation slowed for the month of October, suggesting that they may have peaked.
Retail and wholesale inflation slowed for the month of October, suggesting that they may have peaked.
Retail inflation, as measured by the Consumer Price Index fell to 6.77% in the month of October from its September print of 7.41%, as per data released by the National Statistical Office (NSO) on Monday. The latest inflation number is in line with a forecast of 6.7% by Bloomberg poll of economists. It also vindicates Reserve Bank of India (RBI) governor Shaktikanta Das, who, while speaking at the Hindustan Times Leadership Summit on November 12 said that the October Consumer Price Index (CPI) reading would likely be lower than 7%.
In another set of statistics released by the Union ministry of commerce and industry, wholesale inflation fell to 8.4% in October. WPI was in double digits for 19 consecutive months before this .
Analysts underlined the need for persisting with a vigilant attitude on part of RBI, despite the cooling in inflation. This argument has merit, given the still elevated levels of food, especially cereal inflation and uncertainty in global prices, including in the fuel market. Both food and fuel prices are relatively immune to monetary policy interventions, and therefore will continue to test the efficacy of inflation targeting regime in the country. The price of India’s Crude Oil Basket (COB) stood at $92.4 per barrel on November 11 which is higher than the monthly average price of $90.71 and $91.7 in the months of September and October.
Retail inflation rose for two consecutive months and reached a value of 7.4% in the month of September. The latest moderation in CPI was widely expected and RBI sees this as the beginning of a moderation in inflation levels. The latest Monetary Policy Committee (MPC) resolution of the RBI — it was published on September 30 — has projected CPI growth of 6.5% and 5.8% in the quarters ending December 2022 and March 2023.
Reacting to the latest retail inflation figure, the Union finance ministry said: “The headline inflation rate based on the retail Consumer Price Index #CPI recorded a decline from 7.41 per cent in September 2022 to 6.77 per cent in October 2022. The significant decline in retail inflation is mainly due to a decrease in food price inflation.”
“Consumer Food Price Inflation moderated significantly in Oct. 2022, to 7.01%, which is lower than 8.6% recorded in Sept. 2022. The decline in prices of vegetables, fruits, pulses and oils & fats contributed significantly to the reduction in containing food price inflation,” the ministry said in a series of tweets.
To be sure, October is the tenth consecutive month when CPI has stayed above the 6% mark,the upper threshold of RBI’s tolerance band under India’s inflation targeting framework. “Inflation is a matter of concern, with which we are now dealing and dealing effectively”, governor Das said at the HTLS on November 12. RBI has increased the policy rate — it stands at 5.9% at the moment — by 1.9 percentage points between May 2022 and September 2022. It convened a special meeting of the MPC on November 3 to prepare a response to the finance ministry as it missed its stipulated inflation target of keeping CPI in the prescribed target band of 2%-6% for three consecutive quarters.
A category wise analysis of the latest CPI numbers shows that there has been a broad-based softening in inflationary pressures even though red flags remain. For example, inflation in the cereal and products category increased to 12.66% in October compared to 11.53% in September. To be sure, overall food inflation, which has a share of 39% in the CPI basket, has come down from 8.6% in September to 7% in October. This is largely a result of significant moderation in vegetable prices — inflation came down from 18.2% in September to 7.8% in October — and a disinflation of 2.15% in prices of edible oils. The latter had been an important driver of food prices for a long time.
“While decline in inflation is a good news for the economy, continuous increase in cereal inflation does not augur well for the households at the bottom of the income pyramid, as they spend a disproportionately larger share of their income/expenditure on food products”, Sunil Sinha, Principal Economist, India Ratings said in a note.
Core inflation, which tracks the non-food non-fuel component of the CPI basket, continues to show stickiness. It had a reading of 6.14% in October compared to 6.21% in September, according to data from the Centre for Monitoring Indian Economy (CMIE).
Wholesale inflation, as measured by the Wholesale Price Index, continued to fall for the fifth consecutive month to reach 8.39% in October after having reached a peak of 16.63% in the month of May. To be sure, some of the moderation in WPI numbers is purely because of a favourable base effect as it had grown in double digits for the last 19 months.
“While moderation in WPI inflation offers some comfort, elevated inflation at the retail level suggests the need for RBI’s MPC to maintain vigilance over evolving price trends, ” Madhavi Arora, lead economist Emkay Financial Services said in a note.
“We maintain our view that the RBI could deliver a 35bp rate hike at the December MPC to bring the repo rate to 6.25%, before shifting to a neutral stance. While CPI is on moderating trajectory, 10 consecutive months of above-target inflation would warrant caution from the policymakers,” said Rahul Bajoria, MD & Head of EM Asia (ex-China) Economics, Barclays.
