Retail inflation, calculated on the basis of Consumer Price Index (CPI), continued to rise for the ninth month in a row in October, reaching 7.61 per cent on the back of rise on food prices, showed governmnt data released on Thursday. This is the highest level of retail inflation since May 2014 when the inflation level was at 8.33 per cent.
Inflation in food basket, or Consumer Food Price Index, increased to 11.07 per cent in October from 10.68 per cent in September. Inflation rate in vegetable prices remained high during the month under review at 22.51 per cent. Onion prices had skyrocketed during the month due to supply crunch as rains damaged crops. Potato and tomato prices had also risen beyond the average levels.
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Prices for protein products also were steep with inflation in meat and fish at 18.70 per cent and that for eggs at 21.81 per cent. Pulses and related products got costlier too with inflation rate at 18.34 per cent.
With this, retail inflation has remained above RBI's upper tolerance level of 6 per cent for the seventh month in a row. This lessens the chances of any policy rate cuts in the upcoming monetary policy meeting. The central bank considers retail inflation levels while deciding key interest rates like repo rate and reverse repo rate.
Earlier this month, Economic Affairs Secretary Tarun Bajaj had assured that the elevated food prices is a temporary phenomenon. He had assured that prices will be back to normal as government is taking steps to normalise supply of essential commodities.
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"Although perishable food price pressures appear to be peaking and should have a greater downward impact on inflation, several factors, such as higher operational and labour costs, will likely prevent a large drop in inflation over the next three to six months. The elevated inflation trajectory will effectively rule out a rate cut in December, in our view, though liquidity steps such as stepped-up open market purchases of state and central government bonds and further easing of regulatory norms could be coming," said Rahul Bajoria, Chief India Economist, Barclays India.
"We do not expect the current easy monetary and fiscal policies resulting in macro imbalances for now - either domestic (inflation) or external (current account). The low and downwardtrending money multiplier leads us to believe that current easy liquidity will also not result in a overheating of the economy anytime soon," he further added.
"CPI has soared high to 7.61 per cent, in October, with food inflation moving upwards of 11 per cent. Food prices do not seem to be moderating contrary to earlier expectations, and from just fruits and vegetables the price surge has moved to all the major food components as well. This may have an impact on the trajectory of interest rates, and RBI may have to continue to focus on liquidity provision rather than rate action," said Joseph Thomas, Head of Research, Emkay Wealth Management.
"It is also a fact that the economy is going through unprecedented economic developments and therefore one may expect a relatively higher price level. But persistently high inflation could invite action from the RBI by way of even reducing the free liquidity," he said.