ubi-report-predicts-cpi-inflation-will-exceed-6-in-october

The continued rise in food prices, coupled with the fading high base effect, likely contributed to a surge in retail inflation for October, according to a report by Union Bank of India. 

 

The Consumer Price Index-based retail inflation is expected to jump to 6.15 per cent, breaching the Reserve Bank of India’s (RBI) tolerance band of 6 per cent.

 

Retail inflation data for October is due to be released on Monday evening. In September, India’s retail inflation rose to 5.49 per cent, up from 3.65 per cent in August, reflecting a significant uptick driven primarily by higher food prices.

 

Inflation last exceeded the RBI’s 6 per cent threshold in August 2023. The Union Bank of India report noted that while the RBI’s monetary policy acknowledged the October inflation “hump”, the scale of the price spike might offer little comfort, with November’s inflation also expected to remain high.

 

The report also stated that it anticipates no change in interest rates during the RBI's December policy review, with a potential 50 basis point rate cut cycle expected to start in February 2025.

 

The report highlighted that food prices, particularly for vegetables and edible oils, rebounded in September and October. Looking ahead, attention will turn to the Kharif harvest season and the progress of rabi sowing.

 

 Food inflation is expected to ease in the last quarter of the financial year (January-March), with the report forecasting that the typical seasonal drop in food prices, aided by better prospects for rabi crops, will lead to a normalisation of headline inflation levels.

 

However, the report warned that there are still upside risks to inflation, including potential food supply disruptions, pressures from imported edible oil prices, and the impact of trade tariff hikes led by former US President Donald Trump.

 

Food prices remain a significant concern for Indian policymakers, who are focused on bringing retail inflation down to 4 per cent on a sustainable basis. 

 

To contain inflation, the RBI has maintained its repo rate at 6.5 per cent. The repo rate is the interest rate at which the RBI lends to commercial banks.