Consumer Price Inflation in India Climbs to 14-Month High

By Anant Chandak and Rahul Trivedi
BENGALURU (Reuters)

Consumer price inflation in India reached a 14-month high of 5.81% in October, primarily driven by rising vegetable and edible oil prices, slightly below the central bank's tolerance threshold of 6.0%.

Food Prices Rise

Food prices, comprising nearly half of the inflation basket, likely saw a faster increase last month. Tomatoes, a staple in Indian cooking, are expected to have surged by double digits due to production disruptions from inconsistent rains.

The government's decision to raise import taxes on edible oils by 20 percentage points in mid-September further contributed to rising prices, straining household budgets.

Poll Results

Annual retail inflation as measured by the consumer price index (CPI) is predicted to have risen for a second consecutive month to 5.81% in October, the highest since August 2023, according to a median forecast from a Nov. 4-8 Reuters poll of 52 economists. This follows an increase to 5.49% in September, surpassing expectations.

Estimates for the upcoming data release on Nov. 12 ranged from 5.00% to 6.30%, with nearly a third of economists predicting inflation to meet or exceed the upper boundary of the Reserve Bank of India's (RBI) 2%-6% target range of 6.00%.

Economic Insights

Dipanwita Mazumdar, an economist at Bank of Baroda, noted, "There is broad-based price pressure with a pronounced increase visible in tomatoes and edible oil. Lower arrivals were primarily due to unseasonal rains, and imported inflation is impacting edible oils."

Mazumdar warned that escalating climate risks, a weaker rupee against the US dollar, and geopolitical tensions may further fuel inflation.

Following Donald Trump’s victory in the U.S. presidential election, the rupee fell to its lowest level ever, influenced by strong dollar conditions. This trend may hinder inflation from decreasing quickly.

Core Inflation

Core inflation, which excludes volatile food and energy prices, is forecasted at 3.60% in October based on a sample of 21 economists. Economists believe it could be on the rise due to increased festive demand and higher gold prices.

The RBI does not publish core inflation data, but estimates indicated it at 3.50% in September.

Forward Guidance on Rates

RBI Governor Shaktikanta Das has cautioned about upside risks to inflation, dampening immediate expectations for rate cuts. A slight majority in a separate Reuters poll anticipates a 25 basis points cut to 6.25% in December.

However, given that inflation is not expected to return to the 4% medium-term target until at least 2026, economists suggest rate cuts may be delayed until early next year.

Suvodeep Rakshit, a senior economist at Kotak Institutional Equities, remarked, "It’s uncertain how the rate cut cycle will shape up … given the RBI’s growth forecast, there is little justification for supporting growth."

The RBI predicts 7.2% economic growth for this fiscal year, which some economists consider overly optimistic.

Wholesale price index-based inflation is expected to rise to 2.20% in October, up from 1.84% in September, according to the survey.