In relief to RBI, inflation cools in October

India’s retail inflation fell to a three-month low of 6.77 per cent in October on the back of tighter monetary policy and easing commodity prices, taking some of the pressure off the country’s central bank to keep up with its steep rate hikes.

This could mean cheaper loans down the road for those seeking to borrow money to buy real estate or study abroad.

“This augurs well for the RBI to hopefully take a more accommodative stance in the next meeting as the declining inflation provides headroom to take a go-slow approach on future hikes,” said Samantak Das, chief economist, and head of research and REIS, India, JLL.

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Data released earlier on Monday also showed that wholesale price inflation (WPI) eased to single digits for the first time in 19 months.

The Consumer Price Index (CPI), which measures retail inflation as a function of various sub-groups like food, clothing, housing and fuel, stood at 7.49 per cent in September.

The Reserve Bank of India, which met earlier this month to review why it failed to stop inflation from breaching its 2 per cent-6 per cent target range for nine straight months, has raised interest rates by 190 basis points since May this year to arrest inflation.

Some said the easing of inflation was mainly due to last year’s base effect.

“Most of it was due to favourable base effects even as sequentially CPI increased by 0.8 per cent,” said Kotak Institutional Equities Senior Economist Suvodeep Rakshit.

The fact, that the month-on-month Consumer Food Price Index (CFPI) went up by 1.08 per cent, signals that the economy was not yet out of the woods. CFPI measures the price rise in various items under the ‘food and beverages’ sub-group.

Rakshit added it would take longer for the prices to moderate due to inflation in this sub-group. “Most of the month-on-month increase was due to food, particularly vegetables and cereals. This could be a bit more persistent source of inflation, which will lead to a slow moderation,” he said.

On the other hand, core inflation - which measures the changes in the prices of goods and services excluding food and energy - sticking at 6.2 per cent, remained a problem. This could prompt the central bank to keep up with rate hikes for some more time, said MOFSL group Chief Economist Nikhil Gupta.

“Overall, inflation of 6.8 per cent is nothing to cheer about. If the second-quarter real GDP growth comes in stronger-than-expected, the RBI may go for another 50 basis points rate hike next month, though 35 basis points is still the consensus,” Gupta said. He believed that the terminal repo rate could be 6.5-6.75 per cent by the end of FY23, followed by a long pause in FY24.

(With agency inputs.)