India's Consumer Price Index (CPI) recorded a benchmark inflation rate of 4.87% in October, marking the lowest figure since June. This decline follows a short-term spike observed in July when inflation soared to 7.4%, primarily attributed to a surge in vegetable prices. The subsequent moderation in inflation brings relief to both the Reserve Bank of India (RBI) and the government, although certain essential commodity prices continue to rise, posing challenges for rural demand.
The October CPI reading represents the third consecutive month of declining headline inflation after the spike induced by increased vegetable prices. Food inflation, constituting 39% of the CPI basket, surged to 11.5% in July but has since moderated. Notably, vegetable inflation, a key contributor, has seen a decline from 37.4% in July to 2.7% in October. Despite pulses inflation rising from 10.6% in June to 16.4% in October, overall food inflation slowed to 6.7% in October.
Beyond the food sector, other components of the CPI basket exhibit stability. Clothing, footwear, housing, and miscellaneous services experienced moderate growth, while fuel and power contracted by 0.4%, potentially influenced by reduced cooking gas prices. Core inflation, as per data from the Centre for Monitoring Indian Economy (CMIE), reached 4.3% in October, the lowest since March 2020.
The RBI's Monetary Policy Committee projected an inflation rate of 5.4% for 2023-24, with December and March quarter numbers anticipated at 5.6% and 5.2%, respectively. This aligns with the governor's emphasis on the 4% inflation target. Failure to achieve this target would have increased pressure on the RBI to adhere to its hawkish stance, potentially leading to further interest rate hikes and consequent challenges for economic growth.
Economists highlight that persistent inflation in critical commodities like cereals, pulses, and sugar may compel the government to adopt aggressive supply-side measures. However, this approach could squeeze farm earnings, impacting rural demand and potentially indicating a more prolonged trend.
(Economic dynamics are subject to change, and this information is based on the latest available data.)
