A supportive base and moderation in non-food prices pushed headline retail inflation based on the Consumer Price Index (CPI) to a four-month low of 4.87 per cent in October. It was 5.02 per cent in September. Incidentally, the June print was also 4.87 per cent.

Core inflation (headline inflation minus inflation of food and fuel) also dropped to 4.23 per cent from 4.52 per cent. But going by the trend, economists believe that the RBI’s Monetary Policy Committee (MPC) will continue its pause on policy rates. After hiking the rate by 2.5 per cent, the MPC has opted for a pause button as many as four times in succession.

Five concerns

Though headline inflation is down, economists foresee worrying signs. Devendra Kumar Pant, Chief Economist with India Ratings and Research, listed five concerns: Food inflation remained stable in October at 6.61 per cent, while in September, cereals inflation remained in the double digits at 6.62 percent. 2. An increasing spiral of eggs, fruits, pulses, and product inflation. 3. decline in fuel and lights and transport and communication inflation (due to freeze in pump prices of petrol and diesel). 4. a decline in miscellaneous (mainly services) inflation; and 5. a decline in core inflation (weakness in demand).

Echoing the sentiment, Swati Arora, an economist with HDFC Bank, said persistence in pulses and cereal inflation is worrisome and poses an upside risk to food prices. “CPI inflation is expected to clock a print above 5 per cent both in November and December and average around 5 per cent in Q4 FY24,” she said.

Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank, said: “We expect the trend of sub-5 per cent headline inflation to remain brief, with most of FY24 ahead likely to remain above 5 per cent.”

Interest rate

The big question is what will happen to the policy interest rate. Aditi Nayar, Chief Economist with ICRA, estimated that CPI inflation would climb to 5.6 per cent by December 2023 and remain in a wide range of 4.9–5.6 per cent thereafter for the next two quarters before a particularly benign base effect temporarily dampens it in Q2 FY2025. “We expect the MPC to maintain a hawkish tone amidst a status quo on rates and stances in its upcoming policy meeting,” she said.