Inflation Takes a Breather: Retail Prices Hit Four-Month Low, Clocking in at 4.87%

New Delhi: India’s retail inflation has seen a decline, reaching a four-month low of 4.87% in October, down from just over 5% in September. The moderation is attributed to various factors, including a drop in the rise of vegetable prices to 2.7% from 3.4%. Although consumer food price inflation remained almost unchanged at 6.6%, other categories like services, clothing, footwear, and fuel and light showed signs of deceleration. The reduction in LPG cylinder prices contributed to a 0.4% drop in fuel and light costs compared to October last year.

While rural consumer inflation eased from 5.33% to 5.1%, urban households experienced a slight increase in inflation at 4.65%. The Reserve Bank of India (RBI), expecting inflation to average 5.6% between October and December, is unlikely to reduce interest rates soon, especially with the persisting challenges in food prices. The RBI recently emphasized its commitment to monitoring and controlling inflation around its 4% target.

Though there was a slight relief in inflation rates for cereals, meat and fish, milk, and some other categories, proteins like pulses and eggs experienced sharp acceleration. Fruits and sugar also saw increased inflation rates. Notably, edible oils’ year-on-year prices dropped by 13.7% in October.

Concerns about monetary policy arise due to the unchanged food price inflation and potential Kharif crop shortfalls in the coming months. Bank of Baroda’s chief economist, Madan Sabnavis, pointed out that excluding edible oils, the overall consumer price inflation would have been 5.6%. Personal care services, education, and healthcare showed mixed trends, while transport and communication, as well as clothing and footwear, experienced some moderation.

Despite the national average inflation being 4.87%, there are variations among states. While Tamil Nadu, Madhya Pradesh, and Jammu and Kashmir recorded inflation rates of 4% or lower, others like Odisha, Rajasthan, and Haryana surpassed the 6% mark. The inflation relief in October is expected to reverse course, aligning with the RBI’s projections for the next quarter and throughout 2023-24. Aditi Nayar, chief economist at ICRA, anticipates inflation to climb to 5.6% by December, maintaining a range of 4.9-5.6% for the next two quarters, with a temporary dip in the second quarter of 2024-25 due to a benign base effect.