Welcome news. Retail inflation eases to 3-month low of 6.77 per cent

Retail and wholesale inflation recorded a decline in October, government data released on Monday said.

Retail inflation based on Consumer Price Index (CPI) dropped to three-month low of 6.77 per cent in October against 7.41 per cent in September. Wholesale inflation based on Wholesale Price Index (WPI) came down to 19-month low of 8.39 per cent in October against 10.7 per cent in September. Still, experts expect the Monetary Policy Committee (MPC) to go for another policy interest rate hike in December which will mean interest rates on loans will go up further. This is the 10th month in a row that retail inflation is above the psychological level of 6 per cent.

Food inflation down

The Finance Ministry said the significant decline in retail inflation is mainly due to a decrease in food price inflation. Consumer Food Price Inflation moderated significantly in Octobe to 7.01 per cent, which is lower than 8.6 per cent recorded in September. The decline in prices of vegetables, fruits, pulses, oils and fats contributed significantly to the reduction in containing food price inflation.  

“The Government has taken trade-related measures on wheat and rice to keep domestic supplies steady and curb the rise in prices. The impact of these measures is expected to be felt more significantly in the coming months,” the Ministry said in a series of tweets.

Rajni Sinha, Chief Economist with Care Ratings, said the moderation in headline is primarily led by a strong base. Going forward, with the base effect kicking in, “we can expect the inflation numbers to moderate gradually. The easing of global commodity prices and domestic WPI inflation is also supportive of moderation in CPI inflation. However, producers may not fully pass on the benefits of easing commodity prices to the final consumers in the near-term. We expect RBI to be less hawkish in its upcoming December policy meet and go for a 35-bps rate hike,” she said.

Aditi Nayar, Chief Economist with ICRA, felt that the near-term inflation outlook is clouded by a few risks such as the recent sequential rise in prices of global commodities, supply disruptions for perishables owing to excess rains, and a robust demand for services. Nevertheless, a high base is expected to aid in further softening the YoY CPI inflation to 6 per cent in November. 

“With the CPI inflation remaining solidly above the MPC’s 6 per cent tolerance level in October, we believe that another rate hike is certain in the December policy. However, its size is likely to be tempered to 35 bps, from the 50 bps seen in the last three reviews, given the moderation in CPI inflation in Oct 2022 and the expectations of a further dip in November,” she said.

Wholesale inflation

Giving reason about fall in wholesale inflation, the government said the decline is primarily contributed by fall in the price of mineral oils, basic metals, fabricated metal products, except machinery and equipment; textiles; other non-metallic mineral products, minerals, etc.

Sunil Kumar Sinha, Principal Economist with India Ratings & Research (Ind-Ra), said due to the onset of winter, the inflationary pressure on fruits and vegetables is expected to ease further in the coming months provided there are no weather shocks. The worrying trend in case of food inflation continues in case of cereals which remained in double digit for the third consecutive month in October.

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