India's CPI inflation dropped to 6.77%
09 Dec 2022 17:51:39
New Delhi, Dec 09: India's headline retail inflation likely dropped to a nine-month low of 6.4 percent in November, according to a Moneycontrol poll of 19 economists. While Consumer Price Index (CPI) inflation dropped sharply in October to 6.77 percent thanks to a favorable base effect, the decline in inflation in November is expected to be smaller, but driven by both, a favorable base as well as moderating prices.
The Ministry of Statistics and Programme Implementation will release retail inflation data for October at 5.30 pm on December 12.
At 6.4 percent, economists' prediction for last month's inflation print would be the lowest since February. However, it would be the 11th consecutive month of 6 percent-plus inflation, and the 38th month in a row it has been higher than the Reserve Bank of India's (RBI) medium-term target of 4 percent. According to Rahul Bajoria, Chief India Economist for Barclays, food inflation likely fell to 6.2 percent in November from 7 percent in October. "We continue to see some small price increases in cereals and pulses, but a loss of momentum in perishables such as vegetables is likely," Bajoria said in a note on December 5. However, not everyone is convinced food inflation fell in November. According to Rupa Rege Nitsure, Group Chief Economist at L&T Financial Services, CPI inflation may have risen to 7.02 percent due to higher prices of some food items. Of the 22 food items for which the Department of Consumer Affairs compiles data, 17 saw a month-on-month increase in prices in November – up from 15 in October – including an 11 percent increase in onion prices. The five food items the prices of which were lower in November compared to October, as per Consumer Affairs Department data, were rice (down 0.3 percent), palm oil (down 0.6 percent), tea (down 0.7 percent), vanaspati oil (down 0.8 percent), and tomato (down 17 percent). "Moreover, cost-push pressures have increased the prices of many consumer goods and services," Nitsure added. If the movement in food prices was mixed, the favorable base effect is also not expected to be as strong as it was in October. In October 2021, the general index of CPI had increased by 1.4 percent month-on-month, creating a hugely favorable base effect for October 2022 of 140 basis points, RBI staff wrote in the monthly State of the Economy article last month. In November 2021, the sequential increase in the index was half that of the previous month at 0.7 percent, only slightly higher than the average month-on-month increase of 0.6 percent seen in the index over the last few months. This suggests the base effect was not as favorable last month. The inflation data for November will come in just days after the RBI's Monetary Policy Committee (MPC) increased the repo rate by 35 basis points (bps) to 6.25 percent on December 7 – the fifth time it has raised the policy rate in eight months.
As per the RBI's latest forecasts, CPI inflation is seen averaging 6.6 percent in October-December before cooling to 5.9 percent in January-March 2023 and 5 percent in April-June 2023. Economists are large of the view that the MPC may increase the repo rate only once more in February – if at all – before pausing and taking stock of its actions. "With two out of six MPC members expected to abstain from voting on rate hikes in the next policy review in February, we now expect the RBI to opt for a 25-basis-point increase in repo rate, followed by a pause thereafter,” QuantEco Research said in a note on December 7. The MPC is scheduled to next meet on February 6-8.