Consumer Price Inflation in India Hits 14-Month High

By Anant Chandak and Rahul Trivedi

BENGALURU (Reuters) – Consumer price inflation in India reached a 14-month peak of 5.81% in October, primarily driven by rising vegetable and edible oil prices, according to a Reuters poll. This figure falls just below the central bank's tolerance threshold of 6.0%.

Food prices, comprising almost half of the inflation basket, are anticipated to have surged, with tomato prices rising significantly due to disrupted production from uneven rains.

In mid-September, the government raised import taxes on edible oils by 20 percentage points, likely accelerating price increases and impacting household budgets.

The nationwide retail inflation rate, measured by the consumer price index (CPI), likely increased for the second month to 5.81% in October—the highest since August 2023—following a rise to 5.49% in September, surpassing expectations. Estimates for the upcoming data, to be released on Nov. 12 at 1030 GMT, range from 5.00% to 6.30%, with about one-third predicting inflation to meet or exceed 6.00%—the upper limit of the Reserve Bank of India's (RBI) target range of 2%-6%.

Dipanwita Mazumdar, an economist at Bank of Baroda, commented on the widespread price pressures, particularly in tomatoes and edible oil, attributing the price hikes to lower supply from unseasonal rains and imported inflation. She warned that climate risks, a weaker rupee against a stronger dollar, and geopolitical tensions might amplify inflation further.

After Donald Trump's election win, the rupee reached its weakest point, which may also hinder inflation reduction efforts. Core inflation, excluding volatile food and energy prices and seen as a better marker of domestic demand, is projected to be 3.60% in October, with an earlier estimate of 3.50% for September.

RBI Governor Shaktikanta Das has pointed out the ongoing risks for inflation, tempering expectations for a rate cut. A slim majority of respondents in a separate Reuters poll foresee a 25 basis point cut in the key repo rate to 6.25% in December. However, with inflation unlikely to return to the 4% target before 2026, economists caution that rate cuts could be delayed until early next year.

Suvodeep Rakshit, senior economist at Kotak Institutional Equities, stated that there is little justification for prioritizing growth support based on the RBI's growth forecast of 7.2% for this fiscal year, which some economists view as overly optimistic.

In addition, inflation based on the wholesale price index is expected to climb to an annual 2.20% in October, rising from 1.84% in September, according to survey findings.