India’s headline inflation accelerates in October on rise in food prices, RBI to cut rate in December

India’s headline inflation accelerated in October, driven by a recovery in food prices as unseasonal rains affected supply of fresh produce. Consumer price index rose to 3.58 percent year-on-year in October from September’s 3.28 percent. In all, food prices rose 0.79 percent sequentially, as compared with a decline of 1.14 percent in September.

Meanwhile, core inflation eased slightly in the month to 4.55 percent in October from September’s 4.61 percent. On a sequential basis, core inflation slowed to 0.47 percent from 0.68 percent in the prior month. The momentum of price in the sub-categories of recreation, personal care and effects, and retail transportation eased, countering the policy induced rise in housing.

Stripping the housing index, core inflation decelerated from 4.20 percent in September to 3.97 percent, implying that demand side pressures continue to be modest. Leading indicators such as the manufacturing PMI, auto sales, and bank credit continue to point towards sluggish growth and the persistence of the negative output gap, stated ANZ in a research report.

The Reserve Bank of India is expected to cut the repo rate by 25 basis points during its December meeting. However, there is a risk that a surge in crude oil prices and recent softness in the Indian rupee might affect the imported inflation component. If that happens, the central bank might delay its cut to the first quarter of 2018, added ANZ.

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