India's retail inflation rate increased to 6.21% annually in October, up from 5.49% the previous month, driven primarily by high food prices during the festive season. This was the first time since August 2023 that inflation exceeded the Reserve Bank of India (RBI)'s tolerance threshold of 6%. In September, inflation exceeded the RBI's medium-term target of 4% for the first time since July, reaching 5.49%.
Food inflation rose to 9.69% in October, up from 9.24% in September. Rural inflation also increased to 6.68%, compared to 5.87% in September, while urban inflation went up to 5.62% from 5.05% the month before.
Inflation figures were recorded at 6.68% for rural areas and 5.62% for urban areas. Food inflation stood at 10.69% in rural areas and 11.09% in urban areas.
The spike in food prices was mainly due to the increase in the costs of essential items like vegetables, fruits, and oils. Notably, tomatoes, onions, and potatoes maintained high prices throughout the month. Conversely, there were significant decreases in inflation for pulses, eggs, sugar, and spices.
The sharp rise in onion prices during October has been concerning. Wholesale onion prices have surged from Rs 40-60 per kilogram to Rs 70-80 per kilogram.
In September, India's retail inflation rose to 5.49%, up from 3.65% in August, mainly driven by increased food prices. The last time inflation exceeded the Reserve Bank of India's upper threshold of 6% was in August 2023.
In September and October, there has been a resurgence in food prices, mainly driven by vegetables and edible oils. Moving forward, the focus will be on the Kharif harvest season, with careful monitoring of rabi sowing progress.
The housing inflation rate in urban areas increased slightly from 2.72% in September to 2.81% in October. Additionally, the All India Electricity Index saw a slight uptick in inflation, rising from 5.39% in September to 5.45% in October.
"The CPI inflation worryingly soared further to a 14-month high of 6.2% in October 2024, breaching the upper limit of the MPC's medium term target range of 2-6%. The sequential hardening in inflation was largely led by the food and beverages segment, followed by a mild uptick in the core items. The food and beverages inflation surged to an eye-watering 9.7% in October 2024 from 8.4% in the previous month, amid an uptick in seven of the 12 food groups. Vegetables inflation hardened to a 57-month high of 42.2% from 36.0% in September 2024, which weighed on the food and beverages and, consequently, the headline inflation prints in the month. Excluding vegetables, both these prints were much more benign, at 4.3% and 3.6%, respectively, albeit slightly higher than the readings seen in September 2024," said Aditi Nayar, Chief Economist and head of Research and Outreach at ICRA.
"With mixed trends for various food items amidst a favourable base, ICRA expects the food and beverages inflation to ease to ~8.0-8.5% in November 2024 (+8.0% in November 2023) from 9.7% in October 2024 (+6.3% in October 2023). Overall, after peaking at 6.2% in October 2024, the headline inflation print is likely to soften to 5.5-5.7% in November 2024. With the CPI inflation breaching the 6% mark in October 2024 and expected to exceed the MPC's estimate for Q3 FY2025 by at least 60-70 bps, a rate cut in the December 2024 policy review appears ruled out, in spite of our projection of a sub-7% GDP growth print for Q2 FY2025. We anticipate that a shallow rate cut cycle of 50 bps may commence in February 2025 or later," Nayar added.
"India CPI for October 2024 came in at 6.21%, much higher than market expectations of 5.90%. Large part of the higher inflation can be attributed to higher food inflation which came in at 10.87% vs 9.24% previous month. While it was widely expected that inflation will remain high, the print of above 6% (which is higher side of allowed band) could mean that MPC will push back on any easing in the policy. We do not expect any rate cut in upcoming December policy and further will be a function of unfolding growth and inflation trajectory. On market side, we expect yields to mildly inch-up for near trading sessions," said Akhil Mittal, Senior Fund Manager - Fixed Income, Tata Asset Management.