Inflation to remain below 4% even if onion prices increase: SBI study

The govt release the Consumer Price Index for October on November 12

Inflation is likely to remain below 4 per cent in the coming months, notwithstanding possible increase in onion prices, a SBI study said Tuesday.

The bank's study 'Ecowrap' said, in October, wholesale prices of onion has increased by 9 per cent over the previous month, prompting market expectations of a reverse in the trend of food inflation in coming months.

"Examining the possible onion price impact on food inflation, we however find that even in the worst case scenario, with onion prices registering as much as 50 per cent increase from current levels, with a simultaneous increase in potato and tomato prices will still keep inflation below 4 per cent," it said.

This is, however, a statistical artefact as onion prices had jumped by more than 100 per cent a year back, the report added.

"...if inflation stays below 3.5 per cent for October, November inflation could slip below 3 pre cent.

"As off now, we are expecting headline CPI inflation for October might stay a tad over 3.5 per cent," the study said.

Historical trend suggests, it further said prices of agricultural commodities in general and vegetable prices in particular follow a seasonal pattern in India.

For example, food price increase over last two decades suggests vegetable price increase is primarily restricted to TOP (Tomato, Onion and Potato) and this has been occurring with almost alarming regularity, it noted.

The government would be releasing the Consumer Price Index (CPI) for October on November 12.