Retail inflation eases to 3-month low of 6.77% in Oct in respite for RBI

India's retail inflation, which is measured by the Consumer Price Index (CPI), fell to a three-month low of 6.77% in October, down from 7.41% in September. However, this is the 10th consecutive time that the CPI print has come above the Reserve Bank of India's (RBI) upper margin of 6%.

The RBI's tolerance band is 2-6%. The Central Government has mandated the RBI to maintain retail inflation at 4% with a margin of 2% on either side for a five-year period ending March 2026.

The overall food inflation, which accounts for nearly half the CPI basket, came in at 7.01% in October as against 8.60% in the preceding month.

The retail inflation, which the RBI factors in while deciding its periodic monetary policy, was 4.48% in October last year.

Separately, the factory output, measured in terms of the Index of Industrial Production (IIP), witnessed a growth of 3.1% in September, data earlier released by the Ministry of Statistics & Programme Implementation (MoSPI) showed.

“The dip in the CPI inflation to a sub-7% reading in October 2022 has offered relief, with the print only marginally exceeding expectations (6.7%) and recording a healthy sequential moderation from 7.4% in the previous month,” said Aditi Nayar, Chief Economist at ICRA.

“A favourable base effect and a sequential downtick in the prices of fruits and oils and fats helped to cool food and beverages inflation to 7.0% in October 2022, in spite of the impact of the unseasonal rainfall on vegetables,” Nayar stated.

He added, "With the CPI inflation remaining solidly above the MPC’s 6% tolerance level in Oct 2022, we believe that another rate hike is certain in the Dec 2022 policy. However, its size is likely to be tempered to 35 bps, from the 50 bps seen in the last three reviews, given the moderation in CPI inflation in Oct 2022 and the expectations of a further dip in Nov 2022."

Economists polled by Reuters had forecast October CPI to come in between 6.40% to 7.35%, with majority of respondents expecting a figure under 7.00%.

Data released earlier today showed India's annual wholesale price-based inflation (WPI) eased in October to 8.39% on-year, the lowest since March last year, helped by a fall in commodity prices. The October WPI inflation was lower than the Reuters forecast of 8.70% and 10.70% recorded in the previous month.

The RBI has raised its main repo rate by a cumulative 190 basis points since May to 5.90% to tame inflation.

That overall outlook was in line with a separate recent Reuters poll of economists, which forecast inflation would not reach the mid-point of the RBI's target range, until at least 2025.

Despite the easing of inflation, the central bank is forecast to deliver another 50 basis points to 6.40% by end-March, a Reuters poll suggests.

Apart from higher commodity prices, a weaker rupee, down around 9% for the year, is also adding to upward price pressures.

Data released last week showed that India’s industrial output surprised to the upside, expanding 3.1% y/y in September, following a 0.7% contraction in August.