Retail Inflation in India Drops to 4.87%, RBI Maintains Pause
New Delhi, India – Retail inflation in India has reached a four-month low, with the October consumer price index (CPI) standing at 4.87%, compared to 5.02% the previous month, according to official data. While this figure is within the Reserve Bank of India’s (RBI) comfort level of 2-6%, it still exceeds the ideal scenario of 4% inflation.
The decline in retail inflation can be attributed to a relative decrease in some sub-indexes. However, the RBI has been actively combatting inflation by raising the repo rate by a cumulative 250 basis points since May 2022. Increasing interest rates is a common monetary policy tool used to curb demand in the economy and help reduce inflation rates.
In contrast to retail inflation, wholesale inflation based on the Wholesale Price Index has remained in the negative zone for the past six months. Data for October is expected to be released later this week.
Experts and analysts have noted various perspectives on the October retail inflation numbers:
– Mohit Rahlan, CEO of TIW Capital, believes that the continued downward trajectory of CPI lays the groundwork for the RBI to maintain its current pause on monetary policy. However, the central bank will remain watchful for any food or fuel price shocks.
– Rajani Sinha, Chief Economist at CareEdge, considers the declining trend in retail inflation comforting but raises concerns about weak prospects for the Kharif harvest and potential impact on Rabi sowing due to lower reservoir levels in major agricultural states. Double-digit inflation in categories such as cereals and pulses poses an upside risk to the overall inflation outlook. Therefore, the RBI is expected to maintain a hawkish policy tone in the upcoming monetary policy meeting.
– Vivek Rathi, Director of Research at Knight Frank India, asserts that the decrease in inflation aligns with the RBI’s target range and highlights the effectiveness of prioritizing economic growth while pausing monetary policy actions like interest rate hikes. Stable interest rates have boosted confidence among consumers and businesses, particularly in a challenging global economic environment. The housing market in India has outperformed global counterparts, and stable interest rates are expected to further stimulate demand in the housing sector.
– Dharmakirti Joshi, Chief Economist at CRISIL, expects some softening in food inflation for the December quarter with the arrival of the kharif harvest in the market and government intervention. However, the uncertain oil prices could disrupt this trend if the Middle East conflict escalates. Joshi anticipates the RBI to remain vigilant due to headline inflation remaining above the Monetary Policy Committee’s (MPC) 4% target and persistent risks related to food and fuel. CRISIL’s base case for this fiscal year predicts an average inflation of 5.5% with the MPC maintaining the policy rate and stance.
Overall, the recent decline in retail inflation offers some relief, but potential risks such as agricultural production and global geopolitical circumstances warrant continued vigilance from the RBI. With experts expressing different viewpoints, the RBI’s upcoming monetary policy meeting will be closely watched for any adjustments or policy decisions.
