India’s inflation outlook has taken a more concerning turn, with consumer prices accelerating beyond the Reserve Bank of India’s upper tolerance limit for the first time in two years.
Headline consumer price inflation climbed to 6.09% in October, rising from from 5.54% in September. October’s figure exceeded the Reserve Bank of India’s 6% upper tolerance threshold and moved further above its 4% medium-term target.
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The acceleration was driven primarily by food prices, but the October data suggests that inflationary pressures are becoming more widespread.
The effects of uneven monsoon conditions and agricultural supply disruptions continue to weigh on food prices, with food inflation accelerating to 8.94% from 7.74% in September.
But the concern extends beyond food.
Nineteen of the 43 CPI subgroups recorded inflation of at least 4%, compared with 14 in September. This suggests that the increase in food prices is occurring alongside a broader accumulation of price pressures.
Looking ahead
- CPI outlook: We continue to expect headline inflation to remain elevated over the next two to three months, with food prices and the pass-through of higher input costs continuing to put upward pressure on consumer prices.
- Monetary policy: The central bank has already raised its benchmark repo rate to 5.50% and shifted toward calibrated tightening. With inflation above its tolerance band and price pressures broadening, the argument for further monetary tightening has become considerably stronger.
We continue to expect another 25-basis-point rate increase at the RBI’s December policy meeting and one at the February meeting.
Source: realeconomy.rsmus.com
