New Delhi: India’s retail inflation climbed to 6.09% in October, moving above the Reserve Bank of India’s (RBI) upper tolerance limit of 6%. The inflation rate stood at 5.5% in September. According to government data released on Thursday, the sharp increase was mainly driven by rising food prices.
This marks the 12th consecutive month of rising retail inflation. It has also remained above the RBI’s medium-term target of 4% for four consecutive months. The latest figures have brought the central bank’s upcoming Monetary Policy Committee (MPC) meeting in the first week of December into focus, with expectations of a possible interest rate increase.
Food Inflation Climbs to 8.94% in October
Higher food prices were the biggest contributor to the increase in retail inflation. Food inflation rose to 8.94% in October, compared with 7.75% in the previous month.
Food products account for nearly 40% of India’s Consumer Price Index (CPI), making changes in their prices particularly important for overall inflation.
Uneven and weak monsoon conditions have affected the supply of several essential food items. Onion prices have almost doubled since the beginning of the year. Prices of protein-rich products, including meat, milk and eggs, have also increased.
In addition, expensive imported edible oils and other commodities have added to inflationary pressure in the domestic market.
October Inflation Higher Than Economists Expected
The latest inflation figures have exceeded market expectations. Economists participating in a Reuters survey had estimated October retail inflation at 5.93%, with forecasts ranging between 5.50% and 6.60%.
Food inflation was projected to reach 8.20%, but the actual figure came in significantly higher at 8.94%.
Economists had also anticipated double-digit price increases in certain food categories, including meat, fish, edible oils, fats, fruits, vegetables and sugar.
The rise in domestic inflation comes amid elevated international crude oil prices, which remain nearly 40% above their levels before the US-Iran war. A further increase in oil prices could add to India’s inflation challenges.
The RBI currently expects average inflation to reach 5.2% during the ongoing financial year, revising its earlier estimate of 5%. Economists had projected average inflation of 5.1% in an earlier Reuters survey.
RBI Repo Rate Hike Expected at December MPC Meeting
Rising inflation has increased expectations that the Reserve Bank of India may raise interest rates in its December monetary policy review.
Market expectations have centred on a possible 25-basis-point increase in the repo rate. SBI Research, the economic research division of the State Bank of India, has also predicted that the RBI may increase the rate to control inflation.
Other financial institutions, including Nomura and Jefferies, have similarly indicated the possibility of a 25-basis-point rate hike during the December MPC meeting.
Jefferies has also suggested that the increase could be higher, potentially reaching 50 basis points.
With retail inflation crossing the RBI’s upper tolerance limit and food prices continuing to rise, the central bank’s December policy decision will be closely watched by markets, businesses and borrowers.
Disclaimer: This article is based on publicly reported economic data, market estimates and forecasts from financial institutions. Inflation projections and expectations regarding RBI interest rate decisions are subject to change as economic conditions evolve. The information is intended for general news and educational purposes only and should not be considered financial or investment advice.