Even as the RBI and the government have been taking steps to control inflation, the price hikes of various items, especially food items, have recently affected the overall numbers. The retail inflation target of 4 per cent remains elusive for quite some time. However, October 2023 became the second month in a row when the CPI inflation came within the RBI’s upper tolerance limit of 6 per cent.
The retail inflation in October slipped to a four-month low of 4.87 per cent, mainly due to easing food prices and inched towards the RBI’s target of 4 per cent. The Consumer Price Index (CPI)-based retail inflation fell to a three-month low of 5.02 per cent in September.
The inflation was recorded at 4.87 per cent in June. The RBI Monetary Policy Committee (MPC), in its October meeting, projected CPI inflation at 5.4 per cent for 2023-24, a moderation from 6.7 per cent in 2022-23.
The Latest CPI Numbers: Experts’ Analysis
Devendra Kumar Pant, chief economist & senior director (public finance) at India Ratings and Research, said that while the decline in inflation in October 2023 is good news, there are some causes of concern:
1) Food inflation has remained static in October 2023 at 6.61 per cent (September 2023: 6.62 per cent), cereals inflation remained in double-digits since September 2023,
2) Increasing trend of egg, and fruits and pulses and products inflation,
3) Decline in fuel and lights and transport and communication inflation (due to freeze in pump prices of petrol and diesel),
4) Fall in miscellaneous (mainly services) inflation,
5) Decline in core inflation (weakness in demand),
6) The decline in October 2023 retail inflation was from non-food components only.
Pant also said that going forward, below-par monsoon rainfall is likely to have an impact on cereals inflation, this, along with pulses inflation (increased to 18.79 per cent in October 2023 from 6.62 per cent in May 2023), is expected to keep food inflation elevated.
Food inflation has the potential to push retail inflation higher as witnessed in July and August 2023.
“The core inflation which has declined to 43 months low suggests weakness in demand conditions. The base effect will push up retail inflation in November 2023 towards 5.0-5.4 per cent range,” he said.
Aditi Nayar, chief economist, head of research and outreach, ICRA Ltd, said, “While the uptick in foodgrain prices following an uneven monsoon has manifested in prices in October, higher prices of some vegetables like onions would be partly absorbed by the typical seasonal downtrend in many other vegetables, offering some respite.”
On its impact on the RBI’s next decision, she said the MPC is expected to maintain a hawkish tone amidst a status quo on the rates and stance in its upcoming policy meeting. “We see the earliest likelihood of a rate cut in August 2024, when a shallow rate cut cycle of 50-75 bps could commence.”
Upasna Bhardwaj, chief economist of Kotak Mahindra Bank, said the moderation in inflation provides some relief, especially as the core inflation has remained comfortable.
“We continue to expect the MPC to remain on an extended pause phase in rates with liquidity being used as a more frequent tool to manage the stance,” Bhardwaj said.
State-Wise CPI Inflation In October 2023
Among states, the inflation was above 6 per cent in Odisha, Rajasthan and Haryana. Inflation in states like Bihar, Gujarat, Karnataka, Telangana, Uttar Pradesh and Punjab ruled above the national average of 4.87 per cent. The lowest inflation was witnessed in Chhattisgarh and Delhi.
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