After being on a downtrend for four months, retail inflation rose to 4.48 per cent in October on higher food prices and higher cost of motor fuels. Consumer Price Index (CPI) based inflation stood at 4.35 per cent in September and 7.61 per cent in October 2020.
Annual inflation in June had come down to 6.26 per cent from 6.3 per cent in May. Later it came down further to 5.59 per cent in July, 5.3 per cent in August and 4.35 per cent in September. According to data from the National Statistical Office (NSO), prices of ‘oils and fats’ rose by 33.5 per cent in October 2021, while inflation in the fuel and light category rose to 13.63 per cent.
Inflation in the food basket was 0.85 per cent in October, as against 0.67 per cent in September. The prices of fruits increased by 4.92 per cent, while that of vegetables declined by 19.43 per cent and that of eggs by 1.38 per cent. Rating firm ICRA said the growth in CPI inflation in October 2021, while mild, was quite broad compared to the previous month.
Inflation hardened and diversified for clothing and footwear items suggesting that revived demand is pushing producers in some sectors to pass on input price pressures, resulting in core inflation rising to 5.8 per cent that month. “The MPC is likely to shift the monetary policy stance to neutral when there is additional evidence that the domestic demand revival has become sustainable, which is likely in the February 2022 review,” said Aditi Nair, chief economist, ICRA. It is expected that this will be accompanied by an increase of 15 bps in the reverse repo rate by the RBI.” Despite the base effect, still high fuel costs, input cost pressures and seasonal changes in some food prices in the coming months could lead to inflation. Madhavi Arora, principal economist at Emkay Global Financial Services, said over 6.2 per cent later in the financial year.
This month also, there is a need to monitor the prices of vegetables in view of the increase in real-time data. While the direct impact of the fuel price cut will be visible from November, its indirect impact will also be significant in terms of pressure on producer margins, services inflation and the trajectory of oil and other commodity prices, said Sreejith Balasubramaniam, Economist Fund Management, IDFC AMC said. The government has mandated the Reserve Bank to maintain retail inflation at 4 per cent with a margin of 2 per cent. The next monetary policy of the Reserve Bank is to come next month.
The Reserve Bank, which primarily factors in CPI-based inflation while arriving at its bi-monthly monetary policy, has been tasked by the government to keep it at 4 per cent, with a tolerance band of 2 per cent on either side. RBI estimates CPI inflation for 2021-22 at 5.3 per cent: 5.1 per cent in Q2, 4.5 per cent in Q3; 5.8 percent in the last quarter of the fiscal year, the risk broadly balanced.
Retail inflation is estimated at 5.2 per cent during the April-June period of 2022-23.
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