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Retail inflation breaches RBI target in October, now at a 16-month high of 4.62%

Retail inflation surged to 4.62% in October, mainly on account of higher food prices, as per the govt data.

ET Online|
Updated: Nov 14, 2019, 09.01 AM IST
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Food inflation has picked up pace in the past few month growing from 1.83% in May this year.
India's Retail inflation for the month of October breached the Reserve Bank of India's (RBI) medium-term target of 4% for the first time since July 2018 due to higher food prices even though RBI had predicted that food prices "are likely to moderate as winter supplies enter the market".

Inflation touched 4.62%, according to the data released by the statistics office on Wednesday, compared to 3.99% in the month of September. Inflation, as measured by the Consumer Price Index (CPI), was 3.38% in October last year.

The sharp uptick in consumer inflation dampened expectations of a big cut in interest rates by RBI in December, although most experts expect monetary easing to continue, given the deepening economic slowdown.

“With the economic growth slowdown, we believe growth concerns will dominate RBI’s monetary policy review and it will continue with accommodative policy and expect further rate cut in the policy review of December,” said Devendra Kumar Pant, chief economist at India Ratings.

Consumer Food price inflation, which amounts to half of the inflation basket, increased to 7.89 % compared to 5.1% in the previous month. Core inflation which excludes energy and food items slowed to 94-month low of 3.47 % in comparison to 4% a month ago reflecting the slowdown in the economy. Meanwhile, pulses inflation shot up to 11.72% from 8.4% MoM and vegetable inflation jumped to 26% from 11.4% MoM.

Numbers in brief-
*Rural inflation stood at 4.29 percent in October as against 3.24 percent in September.

*Clothing and footwear inflation was at 1.65.

*Urban food inflation jumped to 10.47 percent in October compared to 8.76 percent in September.

*Inflation in urban areas stood at 5.11 percent, compared to 4.78 percent last month.

*Rural food inflation rose to 6.42 percent in October compared to 3.22 percent last month.

*Vegetable inflation at 26% vs 15.4%(MoM)

*Fuel and light inflation at -2.02% vs -2.18%(MoM)

*Housing inflation at 4.58% vs 4.75%(MoM)

* Pulses inflation at 11.72% vs 8.4%(MoM)

Inflation Rate in India averaged 5.98 percent from 2012 until 2019, reaching an all time high of 12.17 percent in November of 2013 and a record low of 1.54 percent in June of 2017.

The RBI has retained its consumer price inflation forecast for the second half of 2019-20 at 3.5-3.7%. In the last Monetary Policy Report (MPR), RBI had said that the upside risks to inflation include; volatility in international and domestic financial markets from trade tensions, Brexit and supply disruptions in the global crude oil market due to geopolitical tensions.

Macro Check
Courtesy: ET NOW

Aditi Nayar, Principal Economist ICRA Ltd reacted to the numbers, "The sharp uptick in the CPI inflation in October 2019 has contrasted with the industrial contraction recorded in September 2019. In our view, the extent to which the Q2 FY2020 GDP growth reading eases further from the 5.0% recorded in the previous quarter, will influence the MPC's decision on whether to cut rates further and by how much, in the December 2019 policy review."

The RBI has cut rates by a total of 135 basis points this year to 5.15%. The Uptick in headline inflation and its subsequent breach of the Central bank's medium-term target might push RBI to put the breaks on its rate cut cycle in the next MPC meet that is scheduled for December 5.

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India's factory output too contracted 4.3% in September, lowest in eight years. Indicating that the slowdown, which has pushed the government to announce a slew of reforms, is showing no signs of fading away despite favorable policies and a corporate tax cut.

The central bank has pared its FY20 annual growth forecast to 6.1% from 6.8% estimated earlier. The economy grew 6.8% in FY19.

(Inputs from Bureau)

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