In a relief to consumers, retail inflation in October is seen to have dipped to less than 5% as vegetable prices declined, but concerns over rising onion prices as well as high cereal prices remain.
“We estimate that CPI inflation slowed further, to 4.6% year-on-year in October, as food inflation continued to ease, but this reprieve is likely to be fleeting, as onion prices are climbing. Pressures from non-perishable food prices also persist,” Rahul Bajoria, MD & Head of EM Asia (ex-China) Economics, Barclays, said in a recent report, adding that core inflation was broadly stable, supported by easing momentum and base effects.
V.K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services, also said the decline in CPI is likely to continue, taking the October CPI print to 4.9%. “The decline in vegetable and edible oil prices can facilitate the downward shift in CPI inflation. Decline in Brent crude from the September high of $96 to around $80 now is a big relief,” he noted.
Retail inflation as measured by the consumer price index eased to 5.02% in September from a high of 6.83% in August, driven by a sharp decline in vegetable prices and moderation in fuel prices. Official CPI inflation data for October will be released on November 13.
However, since then, onion prices have been rising significantly and are currently anywhere between Rs 60 and Rs 80 per kg in retail markets.
Barclays also highlighted that a near-term pressure point on the food inflation front seems to be the persistent rise in onion prices, the retail prices of which have risen 13% on average since July, due to tight supplies from lower kharif production. “But since the price rise is not as sharp as seen in tomato prices earlier (200% + month on month rise in CPI in July), and other vegetable prices are contained, the impact on headline CPI may not be very strong compared to what was seen in July-August,” it said.
It has projected food inflation at 5.3% in October from 6.3% in September.
Meanwhile, the persistently high inflation in non-perishable food items like cereals is also a pain point. CPI inflation in cereals and products was at 10.95% in September while wholesale inflation in cereals also remained steady at 7.28% in the month.
HSBC economists Pranjul Bhandari and Aayushi Chaudhary also highlighted the issue in a new report and said that they remain “particularly watchful” of cereal prices—mainly rice and wheat—which make up about 20% of the food basket. “In fact, we find that cereal inflation shocks are more salient, and can even spill-over into core, peaking in about eight months, while vegetable inflation shock tends to peter away quickly,” they said, adding that they are also keeping a tight watch on pulse inflation, which is currently running in at an average of 16% YoY.
However, they believe that food inflation will broadly remain at manageable levels and both headline and food CPI inflation will tread lower in the second half of the fiscal compared to the first half. This would be as stocks of several key food items are at comfortable levels, global price of rice and wheat have fallen recently the government’s supply-side food management steps have helped.