Retail inflation jumps to 16-mth high of 4.62 pc in Oct

Retail prices rose by their highest in 16 months in October, driven by costlier vegetables and other foods, and the rupee fell below 72 to the dollar as the economy’s woes continued to pile up.

Retail inflation, as measured by the consumer price index (CPI), rose to 4.62% in October from 3.99% in the previous month.

The only silver lining for the government is that the Reserve Bank of India will most likely cut interest rates again next month in another attempt to kickstart growth. This is despite the fact that a depreciating rupee will make oil imports costlier, further stoking inflation.

According to government data, vegetables saw the highest rate of inflation at 26.10% in October, followed by pulses at 11.72% and, meat and fish at close to 10%. A major decline in Kharif onion output due to untimely rains in Maharashtra and Karnataka led to an unusual spike in vegetable inflation.

Core inflation, which excludes volatile food and fuel prices, however, dropped to a multi-month low of 3.5%, raising hopes that the RBI would maintain its accommodative policy stance in the wake of continued weakness in other macro data points.

Usually, central banks raise interest rates when inflation is high and cut rates when growth is low. A rate cut risks a rise in inflation as consumers get more to spend. But the major worry in India now appears to be growing, so the RBI may opt to focus on that.

“CPI inflation moved above 4.5% on account of a sharp uptick in vegetable prices. However, the spurt in food price inflation is seen to be transient. Slowing growth will dominate the attention of the central bank rather than a temporary spike in food inflation. The flow of frequency indicators reaffirms the broad-based slowdown in economic growth,” said Amar Ambani of YES Securities.

The rupee hit its lowest closing level since September 4. In addition to potentially rising fuel prices, a weak rupee is bad for Indian importers. Conversely, it is good for exports because it makes Indian goods abroad cheaper, putting Indian companies at an advantage over exporters from other nations.

The latest official data showed India's industrial output declined to 4.5% in September, indicating that factories have almost halted production in the wake of mute demand for even consumer goods in the economy.