India’s October inflation likely climbed to 5.93%, edging up to the top of the Reserve Bank of India’s comfort zone, a Reuters poll of economists showed on Friday. If the forecast holds when the official numbers land on November 12, it will be the sharpest reminder yet that the price of everyday food is still running ahead of incomes.
The median estimate from 36 economists surveyed between November 2 and 6 puts annual consumer inflation at 5.93% for October, up from 5.54% in September. Nearly half of those polled expect the reading to come in at or above 6%, the upper end of the RBI’s 2% to 6% target range.
Food is doing almost all of the damage. Food items make up nearly 40% of India’s consumer price basket, and food inflation likely picked up to 8.20% in October from 7.74% in September, according to the same poll.
Why food prices are still climbing
The immediate culprit is the weather. This year’s southwest monsoon was uneven and deficient overall, cutting supplies of key household staples. Onion prices have nearly doubled since the start of the year, and even steadier items such as meat, milk and eggs have turned costlier.
Economists in the poll expect the pressure to spread across the food basket. “We expect meat, fish, oils and fats, fruits, vegetables and sugar to report double-digit inflation,” said Rahul Bajoria, head of India and ASEAN economic research at BofA Securities.
Imported food has added to the strain, with rising global food prices pushing up the cost of edible oils, while oil prices remain about 40% above their levels before the US-Iran war.
Dhiraj Nim, senior economist at ANZ, warned the problem may not fade quickly. “The southwest monsoon outturn was very uneven and deficient overall. In many parts of the country, conditions are drought-like. We could stay in an elevated inflation period for a long time,” he said.
What it means for the RBI’s December decision
Inflation has now stayed above the RBI’s 4% medium-term target for four consecutive months. The central bank began its rate-hike cycle in October, lifting the repo rate by 25 basis points to 5.50% on October 7, and it expects inflation to average 5.2% in the current financial year, higher than its earlier forecast of 5.0%.
Markets now expect the RBI to move again at its next policy meeting in December. The central bank is widely expected to raise the repo rate for a second straight meeting, to 5.75%, according to a Reuters poll last month. DBS Group Research also expects headline inflation to touch 6.0% in October, reinforcing the case for another hike.
Kanika Pasricha, chief economic advisor at Union Bank of India, said it would be prudent for the RBI to continue with its calibrated 25-basis-point rate-hike momentum.
For borrowers, that points to dearer loans. Home and personal loan rates typically follow the repo rate with a lag, so EMIs on floating-rate loans could edge up again early next year if the December hike goes through.
The wider picture
- Core inflation, which strips out volatile food and fuel prices and is seen as a better gauge of underlying demand, is expected at 4.45% in October. The statistics office does not publish official core inflation data.
- Wholesale prices are rising faster still. WPI-based inflation likely accelerated to 12.10% in October from 11.39% in September, the survey showed. High wholesale prices could feed into retail inflation if producers pass on higher input costs.
- The rupee has found some support this week, opening at 94.49 against the US dollar on Friday after foreign investors bought a net $1.6 billion of Indian equities on Thursday, their biggest single-day purchase in nearly six years.
- Growth remains resilient. GDP grew 7.8% in the April to June quarter, and the RBI has projected healthy growth for the full financial year even as it tightens policy.
The official October CPI data, due on November 12, will settle the debate. If the print lands at or above 6%, it will be the first time headline inflation has breached the RBI’s tolerance ceiling in this cycle.
FAQs
What is India’s October inflation forecast?
A Reuters poll of 36 economists expects October CPI inflation at 5.93%, up from 5.54% in September. Nearly half of those polled expect it at or above 6%.
When will the official October CPI data be released?
The Ministry of Statistics and Programme Implementation is due to publish the official October CPI inflation data on November 12.
Why is food inflation rising in India?
An uneven and deficient southwest monsoon cut supplies of key staples, onion prices have nearly doubled since the start of the year, and higher global food and oil prices have added to domestic costs.
What is the RBI’s inflation target?
The RBI targets 4% retail inflation, with a tolerance band of 2% to 6%. Inflation has stayed above the 4% target for four consecutive months.
Will the RBI raise interest rates in December?
The central bank is widely expected to raise the repo rate for a second straight meeting in December, to 5.75% from 5.50%, if inflation stays near the top of its target range.
For now, households will feel the squeeze at the vegetable stall before they see it in any official release. The November 12 number will tell the RBI, and the rest of us, just how hot prices really ran in October.
