Home / Economy / India inflation likely cooled below 7% in October thanks to base effect: poll


India’s retail inflation likely cooled to 6.7% in October from September’s five-month high of 7.41% due to a favourable base effect in some key components such as food prices, found a Mint poll of 22 economists.

If the poll estimate comes true, this will be the tenth consecutive month that inflation has breached the upper-limit of the central bank’s inflation target range. The moderation is explained by the fact that headline as well as food inflation in September 2021 touched a multi-month low.

Despite the moderation, inflation was still high due to the impact of unseasonal rains on food prices, economists said. The December meeting of the monetary policy committee is widely expected to announce another repo rate hike to bring inflation in check. Food inflation jumped nearly 100 basis points in September, and the unseasonal rains that the country witnessed in the previous two months are expected to keep food prices sticky.

The RBI has raised interest rates by a cumulative 190 bps since May to curb rising inflation. Inflation was 4.48% in corresponding month last year, an uptick from 4.35% in September 2021, hence the low base effect. “CPI inflation is expected to moderate in October, reflecting base effects and ongoing moderation in imported prices, but food prices are still likely to rise sequentially," noted economists at Barclays in a report dated 7 November. Inflation came in at 6.3%, 7.3% and 7.0% in the March, June and September quarters, respectively. The official data for October will be released on 14 November.

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The breach of the RBI’s 2016 inflation targeting mandate for three quarters in a row has prompted the central bank to officially provide an explanation to the central government. Last week the RBI held an off-cycle meeting to draft the letter explaining the misses and the action ahead to counter high inflation.

Economists widely expect the rate-hiking cycle to continue in the coming months with another rate hike at the upcoming policy meeting on 5-7 December. “We project another 60 bps rate hike given hawkish commentary from central bank members in the MPC and increased repricing of Fed rate-hike expectations," said Kanika Pasricha, economist at Standard Chartered.

“We see inflation being sustained above 6% in the coming months and will slip within the band only from March 2023."

Economists at Barclays expect core inflation, which does not include the prices of food and fuel, to also moderate in October, but to still stay around 6%. Earlier this month, a Mint analysis showed that India’s retail inflation rate would ease to within the central bank’s tolerance band of 2-6% by March, even if prices continue to rise for the rest of the year as per the trend of the past five years. This would be thanks to the statistical effect of a favourable base.


Manjul Paul

Manjul Paul is a data journalist. She joined Mint in October 2021. Previously, she worked witth the Reuters polling team in Bangalore as a correspondent for four years.
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