India’s Consumer Price Index (CPI) for October showcased a downward trend, hitting a four-month low at 4.87%, down from September’s 5.02%, marking a significant decline from the 6.77% recorded in October 2022. This decline, largely attributed to a high base effect, reflects a promising slowdown in inflation.
While the Food Price Index (CFPI) slightly decreased to 6.61% in October from 6.62% in the previous month, this reduction owes itself to the high-base effect, which tempered year-on-year inflation rates. However, indices for major food items, excluding ‘oils and fats,’ displayed a sequential increase, hinting at underlying pressures in food pricing.
Core inflation, an indicator excluding volatile components like food and fuel, plummeted to a 43-month low at 4.2% for October, significantly lower than the 6% seen a year ago. This sustained moderation below 5% for four consecutive months and below 6% for eight months signals minimal generalized price pressures.
Economists anticipate the Reserve Bank of India (RBI) to maintain a prolonged pause, possibly extending into mid-FY25, considering the subdued core inflation. The month-on-month trend saw a 0.7% increase in the overall CPI index after two consecutive months of contraction. The CFPI, constituting 39% of the CPI, rose 1.1% in October.
Among the major CPI contributors, inflation in ‘cereals and products’ and ‘vegetables’ eased, while ‘pulses and products’ witnessed a rise and ‘milk and products’ inflation decreased. However, ‘oils and fats’ continued to show deflation. Around 26% of the CPI was impacted by high inflation in food items, especially in spices, pulses, cereals, eggs, and fruits, with edible oils notably contributing to a decline in inflation. The sharp increase in onion prices led to a rise in the vegetable index for October, hinting at potential impacts on November’s CPI.
The RBI’s concerns about recurrent food price shocks potentially leading to generalized and persistent inflation remain valid. Additionally, ‘fuel and light’ remained deflationary due to LPG price cuts and the ongoing conflict in Israel-Gaza, averting a surge in global crude oil prices.
Economists project CPI inflation to hover around 5.3-5.4% in the next two quarters, with an upside risk, prompting the RBI to maintain a vigilant and hawkish policy stance in the upcoming meetings. The RBI’s forecast indicates an average CPI inflation of 5.4% for FY24, with Q3 and Q4 at 5.6% and 5.2%, respectively.