November 13, 2017 / 12:29 PM / 5 months ago

Expert Views: India's October retail inflation touches seven-month high

(Reuters) - India’s annual consumer inflation rose to a seven-month high of 3.58 percent in October from a year ago, mainly driven by higher prices of food and fuel, government data showed on Monday.

A woman looks at an item as she shops at a food superstore in Ahmedabad, October 13, 2016. REUTERS/Amit Dave/Files

Analysts polled by Reuters had expected October’s retail inflation at 3.46 percent, up from 3.28 percent in September.


“The inflation print was higher than our expectation. The uncertainty over impact of oil prices and extent of currency depreciation on inflation remains. Even if the GST rate cuts have a downside impact on inflation, it will be neutralized by higher oil and other commodity prices and currency depreciation. Given these facts there is no chance of RBI cutting rates going ahead.”


“A sharp increase of 30 basis points in overall inflation to 3.58 percent on the back of an increase of 50 basis points in food inflation, and an uptick of 80 bps in fuel inflation rules out a remote chance of policy rate cut in December. Hardening trends in global crude prices and growth robustness in the U.S. would keep RBI’s hands tied.”

“Luckily, core inflation - ex food and ex fuel has come in at 4.6 percent - unchanged from the previous month’s level. This shows continued weaknesses in demand.”


“The October inflation is slightly above our estimate due to higher food prices. The normalization of food prices is continuing and we expect food inflation to continue rising till April-June 2018. Core inflation was flat over September in year-on-year terms but this masks a fall in fuel prices and a likely rise in core excluding fuel.”

“Overall, inflation trajectory continues to track slightly below the monetary policy committee (MPC) fanchart. We expect March CPI to print around 4.3 percent. While the recent GST rate changes could pose some downside risk to this estimate, crude prices pose an upside risk.”

“All said, we expect the MPC to maintain the status quo on policy even as their commentary will continue to be neutral to hawkish.”


“Today’s reading has reaffirmed our position that the inflation trajectory in the second half of this year could be lower than the RBI’s projected path of 4.2 percent to 4.6 percent. Whether this transpires into a rate cut or not would depend on the central bank’s intent to utilize the plus or minus 2 percent band (around its 4 percent target).”

“In our view, though there is a risk of breaching the 4 percent target, the breach is unlikely to be substantial. While international commodity prices continue to rise, there are some offsetting factors vis-à-vis a cut in the GST rates and excise duty on petroleum products, and prudent increases in the minimum support prices of Rabi crops.”


“Inflation has ticked up in October, a shade higher than consensus and our expectations. Food inflation ticked up due to a combination of base effects and higher perishables. Non-food pressures are a bigger problem at hand, from multiple fronts, from the fuel angle if the oil price spike is sharp and sustained, coupled with one-off impact of rent allowance and GST impact.”

“October’s CPI and the likelihood that the 4 percent target will be tested in the next quarter, reinforces our expectations that the RBI will stay on hold in December and in the rest of fiscal 2018. On the fiscal end, we expect a modest slippage in the targets due to lower revenue generation.”

Reporting by Suvashree Choudhury, Abhirup Roy and Samantha Kareen Nair; Editing by Euan Rocha

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