India’s October WPI inflation eases to 8.39% y/y

A labourer carries a sack of onions at a wholesale market in Kolkata, India, December 14, 2021. REUTERS/Rupak De Chowdhuri/Files

Bengaluru, Nov 14 (Reuters): India’s annual retail inflation eased to 6.77% in October helped by slower rises in food prices and base effect, but remained above central bank’s tolerance limit, strengthening views of lower rate hikes when it meets for policy review in December.

Annual retail inflation (INCPIY=ECI) in October was higher than the 6.73% forecast by economists in a Reuters poll, and below 7.41% the previous month, data released by the National Statistics Office on Monday showed.

Food inflation, which accounts for nearly 40% of the CPI basket, rose 7.01% in October compared to 8.60% in September.

Month on month retail inflation rose 0.80% in October compared to the previous month while retail food inflation rose 1.08% – reflecting inflationary pressures in the economy. read more



“While no one can project a trend based on just one print, it is quite likely that inflation is going to soften further, partly aided by a favourable statistical base and partly by a steady decline in many food article prices, anchoring of inflation expectations due to the RBI’s previous tightening, and stable fuel prices.”

“I expect the Reserve Bank of India (RBI) to reduce the pace of tightening from the December meeting. However, the actual magnitude of the rate hike will be dependent on many data points such as bank credit growth, corporate earnings, CMIE employment statistics, PV sales, etc.”

“The sharp drop in YoY (year-on-year) inflation is mainly from headline components like food and fuel, and partly to do with high base from last year when commodity prices ran up. Oil price inflation has slowed since March 2022 highs and international metal prices have also come off (even in rupee terms), therefore arresting input price inflation in goods.”

“Moreover, since demand has not fully recovered to pre-pandemic levels, pricing power hasn’t broadened. As a result, sequential seasonally adjusted inflation has also eased to 0.2% MoM (month-on-month) vs 0.4% average in preceding five months. We see headline CPI slowing to 5% YoY by March 2023. While sequential price pressures have eased, we maintain that inflation risk hasn’t abated and sits in the very wide external trade deficit.”


“India’s October CPI of 6.77% y/y was in line with our expectations and food price momentum picked up a bit further. Although prices of cereals, pulses, and vegetables picked up (real time data and news had suggested this), that of milk, meat, fish, and eggs was softer than expected.”

“CPI readings in the next few months would continue to be defined by the trajectory of food prices, in the context of crop damage due to excessive rains in October etc. But latest data also suggests some easing in food prices from that during the beginning of the month. Services price pressure, the trajectory of global slowdown etc. will be important for CPI’s medium-term path.”


“We expect CPI (YoY) to moderate further in the coming months as well on account of base effect and declining international commodity prices. However, movement in food prices will have to be closely watched, in particular vegetables, cereals, and pulses, owing to unseasonal domestic rains and rising international food prices (wheat).”

“On a MoM basis, pressure is seeing a build-up in case of vegetables, fruits, and oils. Cereals and pulses may also come under pressure in the coming months. Among others, prices of transportation, personal care effects, and housing saw a MoM increase in October 2022.”

“Assuming international commodity prices do not present a negative surprise, base effect will help cool down inflation more quickly from December 2022 onwards.”

“We are expecting a 35bps hike in December 2022 and see the terminal repo rate at 6.5% in March 2022.”

“Inflation moderated in October, broadly supported by a high base effect from last year. Core inflation continued to remain sticky at 6%. Going forward, as food inflation moderates in the winter season and favourable base effects continue to play out, headline inflation is likely to tread closer to 6% over the coming months. The Reserve Bank of India (RBI) is not done with its rate hikes as of yet and is likely to hike by another 25bps-35bps in December, and possibly by another 25bps in February, taking the terminal rate closer to 6.5%. However, clearly, we seem to be nearing the end of the rate hiking cycle.”


“The base effect-driven easing of headline inflation does not herald the beginning of easing inflationary cycle. We believe it will be the base effect that will push inflation once again to beyond 7% starting from December once the favourable effect turns decisively adverse and the headline inflation likely potentially testing the April high during February (if not earlier).”

“Stubbornly high core inflation (the highest reading in eight years and rising), despite the lower headline print is indicative of the fact that price pressure is not going to go away in a hurry.”

“Eventually, starting from 2Q23, inflation will meaningfully ease and India will likely experience a sustained disinflationary trend (rather than the yo-yo movement one is getting used to of late), albeit with a slope that is flatter. Food inflation too will follow a similar pattern as the headline inflation.”

Disclaimer :- This story has not been edited by The Sen Times staff and is auto-generated from news agency feeds.
Source: Reuters