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CPI inflation falls to a 3-month low of 6.77% in October

CPI inflation falls to a 3-month low of 6.77% in October

India’s headline retail inflation rate fell to a three-month low of 6.77% in October from 7.41% in previous months with a favorable base effect, data from the Ministry of Statistics and Program Implementation showed on 14 of November.

At 6.77%, the latest Consumer Price Index (CPI) inflation reading is broadly in line with expectations. According to a Moneycontrol survey, inflation has fallen to 6.7%.

The Reserve Bank of India (RBI) also expected lower inflation. At an event on November 13, Governor Shaktikanta Das said that the central bank saw CPI inflation fall below 7% in October.

Despite the sharp drop in inflation in October, it has now spent 10 consecutive months above the 6% upper limit of the RBI’s 2-6% tolerance band.

As for the 4% MTO, CPI inflation has exceeded it for 37 consecutive months.

October Internals

The drop in inflation in October was driven by a favorable base effect, which more than offset a 0.8% monthly increase in the headline CPI index.

In October 2021, the reference period for the latest inflation data, the general index rose 1.4% per month. If the index hadn’t changed at all over the past month, suggesting there was no price boost, inflation would have fallen to 5.9%.

However, a flat index was unlikely as the data shows that the indexes for each of the six groups in the CPI basket show sequential increases.

While food price inflation fell to 7.01% in October from 8.6% in September, the food price index increased by 1.1% month-on-month.

In the food and beverage group of the CPI, 10 of the 12 subgroups experienced a monthly increase in the index. The largest increase was registered in vegetables (4.1%), followed by spices (1.3%) and cereals (1%).

The sequential increase in the fuel index was less than half the food index at 0.5%.

Core inflation, or less volatile food and fuel inflation, is estimated to have fallen slightly to 6% in October from 6.1% in September.

policy implications

Despite a significant drop in inflation in October, this should not affect the RBI’s short-term interest rate decisions.

“While retail and wholesale indices inflation have followed a subdued trajectory, risk developments would warrant a cautious stance by policymakers,” Rahul Bajoria, chief economist at Barclays India, said earlier in the paper. day of wholesale price data.

“We continue to expect the Monetary Policy Committee (MPC) to raise rates by 35 basis points at the December meeting to bring the repo rate to 6.25%.”

Wholesale price index (WPI) inflation fell to a 19-month low of 8.39% in October from 10.7% in September, according to data released by the Commerce Department.

Economists expect wholesale inflation to fall further, but the benefit of lower input costs will be passed on to consumers with a lag.

Therefore, the MPC is expected to raise the repo rate again at its meeting on December 5-7.

The RBI rate-setting body has raised the repo rate by 190 basis points to 5.9% over the past six and a half months. However, there are signs that members are reluctant to increase the repo rate further, with external member Jayanth Varma saying in the minutes of the September 28-30 meeting that the committee “should take a break rather than settle with one”.


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