Retail inflation rises to 14-month high, hopes of rate cut next month recede

• Retail inflation rate surged to a 14-month high of 6.21 per cent in October with a sharp rise in prices of food items, especially fruits, vegetables, meat and fish, and oils and fats, data released by the National Statistical Office.

Highlights:

Retail Inflation Overview:

• Retail inflation surged to 6.21% in October 2024, a 14-month high, driven by a sharp increase in food prices.
• Food inflation, based on the Combined Food Price Index (CFPI), rose to 10.87%, marking its highest level in 15 months.

Core Contributors to Inflation

Food and Beverages:

• Accounts for 45.86% of the Consumer Price Index (CPI) weight.
• Inflation rose to 9.69% in October from 8.36% in September.

Vegetables:

• Inflation jumped to 42.18% in October, up from 35.99% in September.
• Unseasonal rains and extended monsoons were key contributors.

Oils and Fats:

• Inflation spiked to 9.51%, up sharply from 2.47% in September, reflecting rising global edible oil prices and import dependence.

Fruits and Meat:

• Fruits: Inflation increased to 8.43% from 7.65%.
• Meat and Fish: Inflation rose to 3.17% from 2.66%.

Impact on RBI’s Monetary Policy:

Inflation Breaches RBI Target:

• The October CPI print breaches the RBI’s medium-term inflation target band of 4% ± 2% for the second consecutive month.
• RBI Governor Shaktikanta Das has emphasized a cautious approach, reiterating that the neutral stance adopted in October does not imply an imminent rate cut.

Repo Rate Status:

• The repo rate has remained unchanged at 6.5% for 20 consecutive months.
• Hopes for a rate cut in the December policy meeting have been dampened due to persistent inflation concerns.

Key Insights and Analysis

Urban vs. Rural Inflation:

• Urban Inflation: Rose to 5.62% in October from 5.05% in September.
• Rural Inflation: Increased to 6.68% from 5.87%.
• Food inflation in urban areas was higher (11.09%) compared to rural areas (10.69%).

Services Inflation:

• Inflation in the miscellaneous category rose to 4.32% in October, with personal care and effects recording a high inflation rate of 10.99%.

Challenges Ahead:

• Rajani Sinha, Chief Economist at CareEdge Ratings, highlighted concerns over:
• The momentum in vegetable prices, driven by adverse weather conditions.
• The impact of imported inflation due to rising global edible oil prices.

Policy Suggestions:

• Implement supply-side measures to stabilize food prices.
• Manage household inflation expectations effectively.

Prelims Takeaways

• National Statistical Office (NSO)
• Combined Food Price Index (CFPI)