Home / Economy / Cooling food prices bring inflation relief

NEW DELHI : Retail inflation slowed to a three-month low in October, easing below the 7% mark, led by softening food and commodity prices, official data showed. Wholesale inflation also eased to a 19-month low in October, touching single digits for the first time since March last year.

Inflation based on the Consumer Price Index (CPI) eased to 6.77% in October from 7.41% in September, according to data released by the statistics ministry on Monday. A Mint poll of 22 economists had predicted inflation at 6.7%.

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Slowing inflation may ease some pressure on the Reserve Bank of India, allowing the central bank’s monetary policy committee (MPC) to temper rate increases, economists said. However, the panel may need more convincing evidence of price pressures easing before suspending interest rate increases.

Economists expect retail and wholesale inflation to ease further, led by factors such as last year’s high base and stability in energy and commodity prices.

Inflation has now remained over RBI’s upper tolerance band of 6% for the tenth straight month. As a result, RBI has projected inflation for FY23 at 6.7%.

Wholesale Price Index-based inflation eased sharply to 8.39% in October against 10.7% in the previous month, data released by the commerce ministry showed on Monday. Wholesale inflation eased to single digits after 18 months of double-digit inflation.

“The moderation is primarily led by a strong base. With the base effect kicking in, we can expect the inflation numbers to moderate gradually. The easing of global commodity prices and domestic WPI inflation is also supportive of moderation in CPI inflation. However, producers may not fully pass on the benefits of easing commodity prices to consumers in the near term," said Rajani Sinha, chief economist, CareEdge.

She added that the MPC might be less hawkish in its December policy meet and go for a 35-bps rate hike. “Nonetheless, there is a need to closely monitor the impact of volatility in food inflation and impact of exchange rate on imported inflation," Sinha, who expects CPI inflation to fall below 6% only by the end of the current fiscal, said.

Core inflation, non-food, non-fuel inflation remained unchanged at 6% in October, led by clothing and footwear and housing.“It indicates that recovering demand, especially in the festival season, allowed producers to pass on higher input costs to selling prices," said Dharmakirti Joshi, chief economist at Crisil Ltd.

Food inflation eased significantly to 7.04% in October after spiking to a 22-month high of 8.4% in September, led by a favourable base and moderation in fruit, oils and fat prices.

Food inflation is expected to ease further in the coming months. “The total area sown under the ongoing rabi season has risen by 16.5% year-on-year (y-o-y) as on 4 November, driven by rice, wheat, pulses and oilseeds, auguring well for prices going ahead. Additionally, a high base is likely to limit a hardening in the y-o-y food inflation in the second half of FY23, even though perishables’ prices may remain firm in the immediate term," said Aditi Nayar, chief economist at ICRA Ltd. However, she cautioned that a few risks cloud the near-term outlook. “These include the recent sequential rise in prices of global commodities, supply disruptions for perishables owing to excess rains, and a robust demand for services," said Nayar, who expects CPI inflation to soften to 6% in November owing to the high base effect.

The consumer food price index, which includes both manufactured and non-manufactured food articles, eased to 7.01% from 8.6% in September. Food accounts for 54% of weight in CPI.

Inflation in the case of vegetables cooled to 7.77% in October from 18.05% in September and 13.23% in August. However, edible oil prices declined 2.15% from a 0.37% rise in September. The rate of price rise for cereals hardened marginally to 12.08% from 11.53% in the previous month. Eggs reported deflation of 0.18%, while fruits saw inflation at 5.2%.

“While the decline in inflation is good news, continuous increase in cereals inflation does not augur well for households at the bottom of the income pyramid, as they spend a disproportionately larger share of income on food. Cereals and product inflation has been in excess of 5% since March and in double digits in the past two months. Another good news in today’s retail inflation print was a 29-month low services inflation," said Sunil Kumar Sinha, principal economist, India Ratings.


Dilasha Seth

" Dilasha Seth is a journalist reporting on macroeconomic policy for the last 11 years. She writes extensively on issues including international trade, macroeconomic data, fiscal policy, and taxation. At Mint, she reports on trade deals that India is signing besides key policy decisions of the Ministry of Finance. She closely tracked and covered the transition to the goods and services tax (GST) regime in 2017 and also writes on direct tax-related issues. In the past, she has worked with Business Standard and The Economic Times. She is based in Bangalore."
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