India’s Inflation Hits 14-Month High
October Sees Significant Rise in Retail Inflation
In October, India’s retail inflation reached a 14-month high of 6.21%, up from 5.49% in August. This increase was largely driven by a sharp rise in vegetable prices, which surged by 42.18%, causing food inflation to hit double digits at 10.87% for the first time in fifteen months.
Union Bank’s Analysis
A report from Union Bank highlights that the inflation spike is sharper than the Monetary Policy Committee’s (MPC) estimate of 4.8%, currently tracking above 5.5%. The report suggests a potential correction in the fourth quarter, noting that excluding vegetables, inflation is subdued at 3.6%.
Union Bank anticipates a 50 basis point rate cut starting February 2025, while also noting the impact of global factors such as Trump’s policies on the Dollar and interest rates.
Impact of Edible Oil and Cereals
The Reserve Bank of India (RBI) faces additional inflationary pressure due to a recent hike in import duties on refined oils, contributing 25 basis points to October’s CPI. Cereal prices also pose a challenge, with a year-on-year inflation rate of 6.9% and a month-on-month rise of 0.9%.
The report points out that the Public Distribution System (PDS) cereals CPI spike is unsustainable and may influence food inflation levels.
Core Inflation Trends
Core inflation has increased from 3.1% in June and may continue to rise, though it remains within comfortable levels. The report notes that 90% of core CPI sub-segments are below the MPC’s 4% target. However, recent gold price hikes have driven personal care CPI to double digits, though a 5% drop in gold prices in November may offer some relief.
Doubts Revealed
Inflation -: Inflation is when the prices of things we buy, like food and clothes, go up. It means you need more money to buy the same things.
Retail Inflation -: Retail inflation is the increase in prices of goods and services that we buy from shops. It shows how much more expensive things have become for people.
MPC -: MPC stands for Monetary Policy Committee. It’s a group of people in India who decide about interest rates to keep the economy stable.
Basis Point -: A basis point is a tiny unit of measure used in finance. One basis point is equal to 0.01%, so 50 basis points mean 0.50%.
Import Duties -: Import duties are taxes that the government charges on goods coming from other countries. They make imported items more expensive.
Core Inflation -: Core inflation is the change in the cost of goods and services but does not include food and energy prices because they can be very volatile.
CPI -: CPI stands for Consumer Price Index. It’s a number that shows how the prices of things we buy have changed over time.
