Mint Quick Edit | Inflation above 6%: There goes a December rate cut
Summary
- CPI data shows a 6.2% rise in October, above RBI’s upper limit. The odds of a rate cut next month now look bleak. Only if GDP expansion slows sharply would the central bank switch its priority.
Reserve Bank of India (RBI) governor Shaktikanta Das’s warning of inflation rising sharply in October has turned out prescient. Data released on Tuesday showed the consumer price index rose 6.2% last month from its level a year earlier. In September, it had shown a 5.5% increase.
October’s reading is the highest in 14 months and higher than what economists expected. Behind the spike were mainly vegetable prices, which were up 42% from last year as excessive rainfall hurt crops and supplies.
With the headline reading now above RBI’s 6% upper tolerance limit, the odds of a rate cut in the monetary policy committee’s December meeting look bleak.
Also read: Inflation chills rate cut hopes; industrial output is saving grace
Though the rate-setting panel recently shifted its monetary policy stance to neutral, it wouldn’t want inflationary expectations to get entrenched.
A weakening of the rupee to an all-time low against the dollar has also raised the spectre of India’s oil import bill climbing, which could stoke inflation if retail fuel prices go up.
RBI’s 7.2% GDP growth forecast for 2024-25, however, points to confidence in economic output staying firm. Only if the expansion weakens drastically would growth take priority.