Retail and wholesale inflation decreased in October, according to official figures released on Monday, which is good news for both the government and the RBI. Consumer Price Index (CPI)-based retail inflation decreased to a three-month low of 6.77% in October from 7.41% in September. Based on the Wholesale Price Index (WPI), wholesale inflation decreased from 10.7% in September to a 19-month low of 8.39% in October. However, economists anticipate that the Monetary Policy Committee (MPC) will raise policy rates again in December, which will result in higher loan interest rates.
Retail inflation is above the psychological level of 6% for the tenth consecutive month According to the Finance Ministry, a decrease in food costs is the primary cause of the significant drop in retail inflation. Consumer food price inflation significantly decreased from 8.6% in September to 7.01% in October. The reduction in the cost of fruits, vegetables, legumes, oils, and fats significantly helped to keep the food affliction under control. To maintain stable domestic supplies and stop the increase in prices, the government has implemented trade-related measures for wheat and rice.
The Ministry stated in a series of tweets that the effects of these actions “are expected to be felt more significantly in the following months.” According to Care Ratings’ Chief Economist Rajni Sinha, a strong base is principally responsible for the headline’s moderation. In the future, once the base effect takes effect, “we can expect the inflation numbers to gradually moderate. The moderation in CPI is also supported by the easing of domestic WPI inflation and global commodity prices. The benefits of lower commodity prices may not, however, be fully passed on by producers to final consumers in the near future.
In its upcoming December policy meeting, we expect the RBI will be less pessimistic and pick for a 35 basis point rate increase,” she added. Aditi Nayar, the chief economist at ICRA, thought that a few factors, including the recent sequential increase in global commodity prices, supply disruptions for perishables due to excessive rains, and strong demand for services, have cast a shadow over the near-term inflation picture. However, a large base is anticipated to help further moderate the CPI inflation year-over-year to 6% in November. The government provided explanations for the decline in wholesale inflation, claiming that it can be principally linked to price declines in mineral oils, basic metals, manufactured metal goods (apart from machinery and equipment), and textiles; and non¬metallic mineral products, minerals.