Retail Inflation Eases to Four-Month Low

India’s retail inflation saw a decline, reaching a four-month low of 4.87% in October, primarily driven by cooling prices of food items, according to government data released on Monday.

Trend Analysis

The Consumer Price Index (CPI)-based retail inflation dropped to 5.02% in September, marking a three-month low. The previous lowest inflation rate was recorded at 4.87% in June.

Expert Insights

Economists have anticipated this data, citing stability in the food price index, which remained relatively unchanged at 6.6%. However, they caution against complacency, emphasizing the need for a cautious approach in monetary policy decisions. Madan Sabnavis, chief economist at Bank of Baroda, highlights concerns over potential kharif shortfalls impacting future inflation as the harvest season progresses.

Projections by Monetary Policy Committee

The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC), during its October meeting, forecasted CPI inflation at 5.4% for 2023-24, representing a moderation from the 6.7% recorded in 2022-23.

Government Mandate and RBI’s Role

The government has tasked the RBI with maintaining CPI inflation at 4%, with a margin of 2% on either side. The central bank closely considers retail inflation data to formulate its bi-monthly monetary policy decisions.

Impact of Edible Oils

While headline inflation numbers have eased, food inflation remains a concern. Approximately 26% of the CPI basket continues to witness high inflation, with spices, pulses, cereals, eggs, and fruits contributing significantly. However, a notable decline of 13.7% in the prices of edible oils has provided some relief. Excluding this component, the CPI would stand higher at 5.6%.

Core Inflation and Other Concerns

Core inflation remains elevated, particularly in health and personal care categories, with inflation rates of 5.9% and 7.8%, respectively.

In conclusion, while the recent decline in retail inflation is a positive development, ongoing challenges in food inflation and core sectors necessitate vigilance from policymakers to ensure sustained economic stability and mitigate potential risks to consumers.