October retail inflation data due today; economists see it touching RBI's 6% upper limit
Polls put October CPI inflation at about 6%, up from 5.54% in September, driven by food prices; a breach would strengthen the case for another RBI rate hike in December.
India's retail inflation for October, due to be released by the National Statistics Office on Thursday, is expected to have reached or crossed the Reserve Bank of India's 6% upper tolerance limit for the first time since October 2024, according to economist polls.
A Business Standard poll of 11 economists put the median estimate at 6.05%, with forecasts ranging from 5.9% to 6.11%. An Informist poll of 12 economists cited by Business Today pointed to 6%, while Bloomberg Economics expects 6.1%. Consumer price inflation stood at 5.54% in September.
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Food prices in focus
Economists say food is the main driver. Forecasts for food inflation range from about 8.7% to 9.1%, up from roughly 7.4% to 7.7% in September, with cereals, pulses and edible oils costlier after below-normal rainfall. Meat, fish, fruit, vegetables and sugar are expected to show double-digit price rises, while higher feed costs are pushing up eggs and dairy.
Other factors include an unfavourable base effect from last year's GST rate rationalisation, a weaker rupee that has raised import costs, and higher energy and metal prices. Core inflation, which strips out food and fuel, is also seen firming to around 4.5% to 4.7%. ICRA expects food and beverages inflation above 8%.
What it means for rates
The October figure is the last full reading before the RBI's Monetary Policy Committee meets on 2-4 December. The central bank raised the repo rate by 25 basis points to 5.5% on 7 October. Several economists, including at DBS Bank and Bloomberg Economics, expect another hike in December, and Nirmal Bang sees about 50 basis points of increases over the next two meetings. Higher policy rates typically feed into costlier home and personal loans.
Oil and the rupee
Recent movements in crude prices offer some relief. Brent fell below $90 a barrel this week for the first time since August on hopes of an end to the Iran war, though it recovered to above $92 on Wednesday. The rupee closed 7 paise firmer at 93.70 to the dollar on Wednesday, provisionally, according to a PTI report, helped by foreign inflows into equities but held back by a stronger dollar after hotter-than-expected US inflation data.
Despite rising prices, growth estimates remain firm. BofA Securities projects GDP growth of 7.7% for the July-September quarter and 7.4% for the full year, while SBI Research expects 7.8% for the quarter.
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