Retail Inflation in India Drops to 4.87% in October, Reaching a 5-Month Low

India's retail inflation declined to 4.87% in October, marking a 5-month low, according to data from the Ministry of Statistics and Programme Implementation. The decrease was attributed to a favorable base effect and reduced prices of certain items. However, a surge in onion prices tempered the overall decline. The Consumer Price Index (CPI) inflation in September was 5.02%, and the October figure aligned with economists' predictions of a 4.8% year-on-year increase.

Despite staying within the Reserve Bank of India's (RBI) tolerance range of 2-6% for two consecutive months, headline inflation has surpassed the medium-term target of 4% for 49 consecutive months. The RBI anticipates that headline retail inflation will average 5.6% in the last quarter of 2023 and 5.4% for the entire fiscal year 2023-24.

The October inflation data showed stability in food inflation, with vegetables contributing to a 3.4% month-on-month (MoM) increase, driven by a 15% sequential rise in onion prices. Meanwhile, potato and tomato prices contributed to disinflationary trends, with potato prices remaining unchanged and tomato prices falling by 19% MoM. The overall food inflation in October was 6.61%, slightly down from September's 6.62%.

Other categories, such as clothing, footwear, housing, fuel, light, and miscellaneous items, experienced subdued price momentum. Core inflation, excluding food and fuel, decreased to 4.2% from 4.5% in September.

Despite the decline in headline inflation, experts suggest that inflation may rise again in November and December due to an unfavorable base effect. The RBI's forecast indicates an average CPI inflation of 5.6% in the current quarter. Analysts expect the Monetary Policy Committee (MPC) to maintain a hawkish stance, with little likelihood of rate action in the near term.

In summary, while India's retail inflation has temporarily eased, there are expectations of a potential rise in the coming months, and the RBI may continue its cautious monetary policy approach.