India’s Retail Inflation In October Jumps To Highest Since May 2014

India’s retail inflation jumped to the highest in more than six years as prices of vegetables and pulses soared.

Consumer Price Index inflation stood at 7.61% in October—the highest since May 2014—compared with 7.27% in September, according to data released by the Ministry of Statistics and Program Implementation. A Bloomberg poll of 38 economists had pegged the retail inflation at 7.3% for October.

• Inflation in food and beverages rose to 10.16% in October from 9.8% a month ago.
• Core inflation rose to 5.47% in October—the highest in at least a year—compared to 5.35% in October.

Retail inflation has now stayed above the Monetary Policy Committee’s target of 4% (+/-2) for the seventh straight month. Contrary to the central bank’s expectations, pressure on prices of key vegetables is yet to ebb.

Surging vegetable prices have kept CPI elevated, though we see early signs of prices beginning to moderate in November, said Rahul Bajoria, chief India economist at Barclays.

Inflation Internals

• Inflation in meat and fish rose 18.7% in October compared with a 17.6% rise in September. While vegetable prices rose 22.51% from 20.73% last month, prices of pulses rose 18.34% from 14.67%.
• Clothing and footwear inflation stood at 3.17% compared with 2.97% in September.
• Fuel and light inflation stood at 2.28% compared with 2.8% last month.
• Health inflation was at 5.22% against 4.9% in the previous month.
• Inflation in transport and communication rose 11.16% against an increase of 11.5% last month.
• Housing inflation stood at 3.27% in October compared with 2.83% in September.
• Household goods and services inflation stood at 2.83% against 2.9% in the previous month.
• Personal care and effects inflation was at 12.07% compared with 12.4% in September.

Vegetable Prices Continue To Rise

Prices of key vegetables like potato and onion rose despite a deceleration in prices of tomato. The rise in prices of potato was the sharpest at 104.56%, compared to a 102%-rise last month. That comes as the government implements supply-side measures such as export curbs, and fresh crops arrive, helping lowering prices.

Extended Pause In Rate Cuts

Nine months of above-target inflation will effectively rule out rate cuts by the central bank in December policy, said Bajoria. Devendra Pant, chief economist at India Ratings, said the Monetary Policy Committee is in a difficult situation with inflation breaching 6% three consecutive quarters, growth being low and India being in the middle of a technical recession. As such, India Ratings expects an extended pause on policy rates, Pant said.