India's retail inflation, as measured by the Consumer Price Index (CPI), declined to a four-month low of 4.87% in October, compared to 5.02% in September 2023, due to cooling prices of food items.

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According to a CNBC-TV18 poll of economists, the CPI forecast was at 4.8%. The Reserve Bank of India (RBI) factors in the CPI data while making its bi-monthly monetary policy.

The street is divided on how the latest drop in retail inflation may affect the RBI's stance. While Bank of America Securities continues to expect another rate hike from the RBI, UBS expects rates to remain unchanged. On the other hand, CLSA believes that the odds of a rate cut have risen with the latest data.

It is important to note that the RBI's target for retail inflation is 4%, and even after the recent cool-off, the price is still well above the central bank's comfort level. Governor Shaktikanta Das had recently emphasised that the monetary policy panel is committed to bringing it down to that level.

The previous low in inflation was recorded in June when it came in at 4.87%. The RBI Monetary Policy Committee (MPC), in its October meeting, projected CPI inflation at 5.4% for 2023-24, a moderation from 6.7% in 2022-23.

Also Read: India vulnerable to recurring, overlapping food price shocks, RBI chief says

As per the data released by the National Statistical Office (NSO), the inflation in the food basket was 6.61%, marginally down from 6.62% in September and 7% in the year-ago month. The inflation in the 'oil and fat' segment declined by 13.73%, while it remained subdued in the case of vegetables, meat and fish, and 'light and fuel'.

Among states, the inflation was above 6% in Odisha, Rajasthan and Haryana. Inflation in states like Bihar, Gujarat, Karnataka, Telangana, Uttar Pradesh and Punjab ruled above the national average of 4.87%. The lowest inflation was witnessed in Chhattisgarh and Delhi. On a national level, the retail inflation was 5.12% in rural areas and 4.62% in urban India.

The government has tasked the RBI to ensure the CPI inflation remains at 4% with a margin of 2% on either side. The central bank mainly factors in the retail inflation while arriving at its bi-monthly monetary policy.

Sujan Hajra, chief economist and executive director of Anand Rathi Shares and Stock Brokers, said the retail inflation rate for October 2023 was both lower than the level recorded in September 2023 and higher than our initial expectations.

"Yet, since the monthly inflation figures are notoriously volatile, this ought not to elicit apprehension. As the overarching pattern of declining inflation persists, the central bank would find solace in an inflation rate that has now fallen below 5%," Hajra said.

Also Read: India's industrial production rises 5.8% in September 2023

"As a result of declining inflation and ongoing economic resilience, the Reserve Bank of India will maintain the halt stance for the foreseeable future. We anticipate that inflation will fluctuate between 4% and 5% over the next twelve months. We therefore see little likelihood of any rate action occurring within this time frame," Hajra added.

The price data are collected from 1,114 urban markets and 1,181 villages, covering all states and UTs through personal visits by field staff of the operations division of the National Statistical Office, Ministry of Statistics and Programme Implementation (NSO, MoSPI) on a weekly roster.

Watch: Upasana Chachra, the Chief India Economist at Morgan Stanley, talks about the inflation scenario in India.

In October 2023, the NSO collected prices from 99.8% of villages and 98.6% of urban markets. The market-wise prices reported therein were 89% for rural and 92% for urban markets.

(Edited by : Shoma Bhattacharjee)

First Published:Nov 13, 2023 5:48 PM IST