India’s consumer inflation eases in October, bolsters hope for RBI December rate cut

Consumer prices in India eased during the month of October, bolstering hopes for a December interest rate cut by the Reserve Bank of India (RBI).

India’s October consumer price index (CPI) Inflation fell to 14-month low to 4.20 percent m/m, compared to 4.31 percent m/m. Food Inflation came in at 3.2 percent as against 3.96 percent in September 2016. Further, cereals and products Inflation rose 4.4 percent over 4.17 percent, data released showed Tuesday.

In addition, retail food price inflation in October was 3.32 percent, lower than 3.88 percent recorded in September. The WPI food inflation basket too showed moderation with inflation at 4.34 percent in October, as against 5.75 percent in September.

"Although inflation has declined both at the retail and wholesale level in October 2016, the trends revealed by the Q2 FY2017 GDP growth figures to be released in a fortnight would also influence the monetary policy action in December 2016.  Nevertheless, the situation is fairly fluid in the early days (of) post-demonetization. The MPC may choose to observe the evolving growth-inflation dynamics and defer a rate cut till the February 2017 policy review," Reuters reported, citing Aditi Nayar, Senior Economist, ICRA.

The Narendra Modi-led BJP government had announce the scrapping of all old INR500 and INR1000 notes on November 08, in a dynamic and deliberate step to curb rolling of black money in the country. This demonetization move may well play in the process of India’s future inflation and also factor into the country’s repo rate decision by the central bank.

Meanwhile, President of the Federation of Indian Chambers of Commerce and Industry (FICCI), Harshavardhan Neotia said that the RBI should consider a 0.50 percent cut in the repo rate in the bi-monthly monetary policy meeting, next scheduled in December as the environment remains consistent with slowing inflation.