Thursday, 05 Dec, 2024
Consumer price index is used in calculating the retail inflation in the economy by tracking the changes in prices of most commonly used goods and services. Image Source: IANS
The inflation rate for tomatoes increased by 161.3 percent in October compared to 42.9 percent in the previous month.
India’s retail inflation in the month of October 2024, according to the data released by the Ministry of Statistics and Programme Implementation, increased to a 14 month high of 6.21 percent. The urban inflation in October 2024 increased to 5.62 percent from 5.05 percent in September. Talking about the inflation in rural areas, it jumped from 5.87 percent in September to 6.68 percent in October 2024. Consumer price index is used in calculating the retail inflation in the economy by tracking the changes in prices of most commonly used goods and services. This means that higher the CPI, higher the inflation which occurs due to the rise in prices of goods and services.
The most recent statistics shows that food inflation in India has increased to 10.87 percent, up from 9.24 percent in September 2024 and 6.61 percent in October 2023. Out of all the food items, vegetables saw the highest rate of inflation, rising by an astounding 42.18 percent between October 2024 and October 2023. Vegetable price inflation was slightly higher in urban regions (42.63 percent) than in rural areas (41.94 percent). Fruits, with an inflation of 8.43 percent, and oils and fats, with an inflation of 9.51 percent, came next.
Talking about the inflation in states, in comparison to October 2023, Chhattisgarh experienced the greatest rate of inflation in October 2024, at 8.84 percent. Bihar came next at 7.83 percent and Odisha at 7.51 percent. With 4.01% inflation, Delhi had the lowest rate, followed by West Bengal (4.63 percent) and Maharashtra (5.38 percent).
Source: Ministry of Statistics and Programme Implementation
Aditi Nayar, chief economist, ICRA said, "With the CPI inflation breaching the 6% mark in October 2024 and expected to exceed the MPC's estimate for Q3 FY2025 by at least 60-70 bps, a rate cut in the December 2024 policy review appears ruled out, in spite of our projection of a sub-7 percent GDP growth print for Q2 FY2025. We anticipate that a shallow rate cut cycle of 50 bps may commence in February 2025 or later."
While the inflation rates for garlic (82.5 percent), potatoes (64.9 percent), and onions (51.8 percent) all stayed in the high double digits, the inflation rate for tomatoes increased by 161.3 percent in October compared to 42.9 percent in the previous month.
Refined oil prices increased 10.4 percent in October after deflation of 0.3 percent in September due to the government's implementation of customs duties on the commodity. Prices for coconut oil increased 34.5 percent as opposed to 23.9 percent. The government found respite in the further reduction of rice inflation to a 26-month low and pulse inflation to a 17-month low of 7.4 percent.
Akhil Mittal, Senior Fund Manager - Fixed Income, Tata Asset Management said, "India CPI for October 2024 came in at 6.21 percent, much higher than market expectations of 5.90 percent. Large part of the higher inflation can be attributed to higher food inflation which came in at 10.87 percent vs 9.24 percent previous month. While it was widely expected that inflation will remain high, the print of above 6 percent (which is the higher side of allowed band) could mean that MPC will push back on any easing in the policy. We do not expect any rate cut in upcoming December policy and further will be a function of unfolding growth and inflation trajectory. On market side, we expect yields to mildly inch-up for near trading sessions,"
The government has mandated the Reserve Bank of India to maintain the retail inflation at 4 percent with a margin of 2 percent on either side for a five-year period ending March 2026. The CPI is heavily weighted by the RBI while formulating its bi-monthly monetary policy. The repo rate was increased last time on February 08, 2023 by the Monetary Policy Committee (MPC) by 25 basis points (bps), bringing it to 6.50 percent. The Reserve Bank of India kept the repo rate unchanged at 6.5 percent for the 10th consecutive time. The six-member Monetary Policy Committee (MPC), led by the RBI Governor, made the decision to retain the benchmark repo rate at 6.5 percent.
The MPC had increased the benchmark interest rate by 250 basis points in the fiscal year 2022-23 in an effort to control the raging inflation. The RBI increases the repo rate as a measure of tight monetary policy to counter inflation. Repo rate is the interest rate at which the central bank of a country lends money to commercial banks. In the event of inflation, central banks increase repo rate as this restricts the commercial banks to borrow from the central bank. This ultimately reduces the money supply in the economy and thus helps in reducing inflation.
Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank said, "The sharply higher than expected CPI inflation has largely been led by a surge in vegetable prices but also a sharp pickup in core inflation. We expect the uptick in food prices to keep the headline inflation higher than 5% even in the next reading before seasonal downturn begins to bring down inflation. We expect the RBI to stay on hold in the upcoming December policy before considering a cautious easing from February."
The price data are collected from selected 1,114 urban Markets and 1,181 villages covering all States/UTs through personal visits by field staff of Field Operations Division of NSO, MoSPI on a weekly roster. During the month of October 2024, NSO collected prices from 100.0 percent villages and 98.5 percent urban markets while the market-wise prices reported therein were 88.3 percent for rural and 92.8 percent for urban.
