Retail inflation as indicated by the Consumer Price Index (CPI) dipped to a 13-month low in October to 3.3 per cent. However, industrial growth as reflected in the Index of Industrial Production (IIP) slowed marginally in September to 4.5 per cent which meant consumer demand was subdued.

Considering the headline inflation below 4 per cent, the Monetary Policy Committee (MPC) led by the RBI Governor is likely to keep the policy rate (better known as repo rate — the rate at which RBI lends money to banks for a shorter period) unchanged at its meeting next month. The MPC is slated to announce its decision on December 5. The committee has so far raised the policy rates twice in the current fiscal.

According to data released by the Ministry of Statistics and Programme Implementation (MoSPI), vegetables, pulses and sugar helped in lowering the inflation. In fact, food products witnessed deflation after a gap of 14 months. Housing inflation in October at 6.55 per cent was at a 13-month low and will alleviate fears of housing inflation stoking general inflation. However, as demand conditions have remained strong, core inflation (excluding food, fuel & light and transport & communication) increased to 5.46 per cent in October as against 5.3 per cent in September and 4.9 per cent in October 2017.

Douses inflation concern

Aditi Nayar, Principal Economist at ICRA, said the MPC is likely to maintain status quo on the repo rate in the December policy review, following the correction in the October headline CPI inflation print, as well as the recent pull-back in crude oil prices and the rupee, which have doused concerns related to the inflation trajectory. Nevertheless, “the month-on-month rise in prices of various food items so far in November and the weak start to the post-monsoon rainfall season, need to be watched,” she said.

Positive surprise

B Prasanna, Group Executive and Head (Global Markets Group), ICICI Bank, said October CPI print surprised positively as it was much lower than expected. It continued to be aided by the food component which shrunk on a sequential basis underscored by components such as fruits, vegetables and pulses. He also said the earlier fears of Minimum Support Price (MSP) hikes feeding through to CPI have been allayed.

However, the sharp increase in core inflation, which is remaining sticky at 6.2 per cent is worrying, with components such as health and personal care, and household goods showing high sequential momentum. “We expect FY19 headline inflation to remain very benign given the recent downturn in oil prices, stability in the rupee and mild inflation prints. The next inflation print could be even lower,” he said.

Meanwhile, despite the beginning of the festival season, industrial growth has not picked up. It was 4.5 per cent in September as compared to 4.7 per cent (revised) in August and 4.1 per cent. Manufacturing was down to 4.6 per cent in September from 5.07 per cent in August.

DK Pant, Chief Economist at India Ratings, said there has not been any significant acceleration in factory output despite waning of the impact of both demonetisation and GST implementation. Moreover, it appears that the onset of the festival season has also failed to accelerate the factory output growth, especially of consumer durables. Consumer durables grew 5.2 per cent, that too on a very low base.

“Seen against the backdrop of successive good monsoons and the 7th Pay Commission payout this suggests that consumption demand is still subdued. This is not a good sign, as the impulse of rising consumption demand is firstly felt by the sustained rise in demand for durables/non-durables and thereafter translates into demand for other industrial segment such as capital goods sector via intermediate and primary goods,” he said.

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