Inflation has dipped but risks of another upsurge loom

For a large part, that decline in retail reading had a seasonal correction in vegetable prices and the government’s slashing of cooking gas prices to thank.
For a large part, that decline in retail reading had a seasonal correction in vegetable prices and the government’s slashing of cooking gas prices to thank.

Summary

  • Erratic monsoon rains and crude oil risks from the war in West Asia may make it harder to cap the rise in our cost-of-living, but RBI must meet its 4% target

October’s inflation prints will offer Indian policymakers relief. Wholesale inflation data released on Tuesday showed a 0.52% year-on-year decline in prices last month, marking the seventh month in a row that the reading has been negative. This followed a decline in the benchmark consumer inflation rate to 4.87% year-on-year in October from 5.02% in September. October’s retail reading was the lowest in four months and marked the second-straight month of it having stayed under the Reserve Bank of India’s (RBI) 6% upper tolerance limit. 

For a large part, that decline had a seasonal correction in vegetable prices and the government’s slashing of cooking gas prices to thank. But risks of a fresh upsurge loom. For one, any spike in crude oil prices if the war in West Asia spreads could stoke inflationary pressures anew. Also, erratic monsoon rainfall is feared to have hurt India’s summer crop, while the winter crop could also suffer due to low reservoir levels amid potentially patchy rain. Food inflation may not be over as a threat yet. 

RBI is committed to attaining a cost-of-living uptick of 4%, a target it is yet to show it can hit and hold steady, even if its confidence seems high.

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