India’s Inflation Hits 14-Month High

New Delhi, November 13 – India’s retail inflation climbed to a 14-month high in October, reaching 6.21% from 5.49% in August. The surge is largely driven by food inflation, which rose to 10.87% in October, marking the first double-digit increase in 15 months. The spike in food prices is mainly attributed to a sharp 42.18% rise in vegetable prices.

A Union Bank research report noted that inflation levels are exceeding the Monetary Policy Committee’s (MPC) estimate of 4.8%, currently tracking above 5.5%. The report projects a notable correction in the fourth quarter, estimating that inflation excluding vegetables remains subdued at 3.6%. “With core CPI excluding vegetables still relatively low at 3.6%, a seasonal correction in vegetable prices may be delayed as onion prices continue to rise in November,” the report stated.

The Union Bank report anticipates a gradual 50-basis-point rate cut starting in February 2025. “We maintain our outlook for a 50bps rate cut cycle beginning in February, as detailed in our MPC outcome report. However, global uncertainties, especially around the U.S. Dollar and Trump’s policies, could impact inflation and interest rate expectations,” the report added.

Edible oil prices are also expected to add inflationary pressure. The recent increase in import duties on refined palm, soy, and sunflower oils from 13.75% to 35.75% since mid-September is likely to drive inflation higher. “Edible oils alone contributed nearly 25bps to October’s CPI, and this impact may continue for up to 12 months,” the report warned.

Cereals present another challenge for the Reserve Bank of India (RBI) in controlling inflation, with YoY inflation for cereals at 6.9%. Month-on-month, however, cereal prices increased by 0.9%, creating additional pressure. The report also highlighted the contribution of cereals under the Public Distribution System (PDS) as a concern, especially as rice PDS CPI showed a significant monthly rise.

The report also noted that while core inflation has edged up from a low of 3.1% in June, it remains largely within comfortable levels. “In October, nearly 90% of core CPI sub-segments stayed within the MPC’s target of 4%, with key measures such as core ex-transport and core ex-housing also below 4%,” the report said.

Additionally, the recent rise in gold prices has driven personal care inflation to double digits for the first time since January 2021. “Gold prices have been a primary driver of core inflation. However, recent strength in the Dollar may offer some inflation relief if sustained,” the report concluded.