The rate of retail inflation, as measured by the Consumer Price Index (CPI) breached the Reserve Bank of India’s (RBI’s) medium-term target of 4 per cent in October, for the first time in 15 months, on the back of higher food prices.
The CPI-inflation rate had stood at 3.99 per cent in September and 3.38 per cent in October 2018.
Inflation in the food basket spiked to 7.89 per cent in October 2019, against 5.11 per cent the previous month. The RBI mainly factors in the CPI based inflation to arrive at its bi-monthly monetary policy. The RBI has been asked to keep the retail inflation at around 4 per cent.
Most economists, however, expect the RBI’s Monetary Policy Committee (MPC) to look past the inflation data and cut rates for a sixth straight time next month, with economic growth and industrial output sagging to six-year lows.
Annual retail inflation rose to 4.62 per cent last month, up from 3.99 per cent the previous month and higher than the 4.25 per cent forecast in a Reuters poll of analysts.
Prices of most vegetables climbed in October as monsoon downpours delayed harvests and disrupted supplies.
That was despite a government ban on onion exports, a key component in the Indian diet.
"The inflation print has surprised on the upside on account of vegetable inflation in October," said Madhavi Arora, an economist at Edelweiss Securities.
Worries on the economic slowdown have already prompted the RBI to cut interest rates by a total of 135 basis points this year.
Economists say the RBI will continue to cut rates as July-September growth could be worse than the previous quarter after industrial output contracted two out of three months during the period and core inflation continues to reflect weak demand.
September industrial output contracted 4.3 per cent, government data showed on Monday following a decline of 1.4 per cent in August.
The RBI too has lowered its economic growth forecast by 80 basis points to 6.1% for the current year ending March 2020.
Three analysts said October core inflation was at 3.44-3.60 per cent, against 4-4.02 per cent in September.