India's retail inflation eases to 3-month low in October; stays above RBI comfort band again

India's retail inflation eased sharply to 6.77 per cent on an annual basis in the month of October from 7.41 per cent in September, 2022.

The number has remained above RBI’s tolerance band of 2-6 per cent for the 10th consecutive month.

Sequentially, the headline inflation grew by 0.80 per cent from 0.57 per cent in the preceding month.

The decline in headline inflation can be attributed to favourable base effect. However, the supply-chain disruptions due to ongoing geopolitical factors and hardening of commodity prices globally continue to thrust ahead the inflationary pressure.

Food inflation for October came in at 7.01 per cent as against 8.6 per cent a month before.

Inflation rate for vegetables came in at 7.7 per cent. Meanwhile, fuel and light inflation declined to 9.93 per cent compared to 10.39 per cent in September.

While exogenous price shocks are among the factors to be blamed for India's trouble with rising consumer prices, analysts believe the outlook is still bleak with various factors for an elevated inflation rate. In fact, rating agencies, including Moody's, have recently cut India's growth estimates assuming high inflation and high interest rates.

The Reserve Bank of India (RBI) governor Shaktikanta Das had expected the inflation to be lower than 7 per cent in October.

“We expect the October number to be lower than 7 per cent. So therefore, inflation is a matter of concern with which we are now dealing and dealing effectively,” media reports quoted Das as saying.

Higher inflation has been a concern for central banks across the globe, including India, as the uncertain nature of the Russia-Ukraine war compounded supply side disruptions in the post-pandemic world that was barely going through a nascent recovery from economic shocks.

Recently, on November 3, an out-of-turn meeting of the RBI’s Monetary Policy Committee (MPC) was held to discuss and draft the report to be sent to the central government for having failed in maintaining the inflation mandate.

Under the flexible inflation targeting framework introduced in 2016, the RBI is deemed to have failed in managing price rises if the CPI-based inflation is outside the 2-6 per cent range for three quarters in a row.

As per the RBI estimates, the inflation is expected to come down to 6.5 per cent in Q3 FY23 and 5.8 per cent in Q4 FY23.

Earlier today, the Commerce Ministry released data for India's wholesale price index-based inflation for October which came in at 8.39% on an annual basis. With this, the wholesale inflation in India has broken the streak of being in double digits for 18 consecutive months.