Retail inflation breached the Reserve Bank of India’s upper tolerance limit(6 per cent), rising 6.09 per cent in October for the first time in two years. Earlier in September, the consumer price index (CPI) based inflation was at 5.54 per cent. Meanwhile, considering the higher inflation rates in the past few months, the higher inflation rates in the past few economists anticipate a policy rate hike by the RBI next month.
Food Inflation Played Key Role In Higher Inflation
Sustained uptick in food and essential items prices and transport inflation played a key role in pushing up the October headline number.
Data released by the Ministry of Statistics & Programme Implementation on Thursday showed that food inflation spiked to 8.94 per cent in the month under review from 7.74 per cent in the previous month.
Top 5 High-Inflation Items From The Index
Item | Inflation (%) |
|---|---|
Onion | 116.22% |
Garlic | 60.74% |
Silver Jewellery | 52.39% |
Ginger | 48.32% |
Lemon | 47.30% |
This is the first time in two years that retail inflation breaches the upper tolerance band of 6 per cent. Earlier, in October 2024, the metric hit 6.25 per cent. RBI is tasked with keeping inflation within the range of 2-6 per cent. In October 2024, retail inflation was 6.25 per cent.
Economists Predict Rate Hikes Ahead
DBS Bank Senior Economist and Executive Director, Radhika Rao, expects a rate hike in the next RBI MPC meeting to mitigate the higher inflation.
"With headline inflation yet to peak, compounded by an unfavourable base effect, the central bank's quarterly projection is likely to be revised higher. The data reinforces our expectation of a second successive rate hike in December," Rao says.
Vikram Chhabra, senior economist at 360 ONE Asset, predicts another hike of 0.25 basis points in the next MPC meeting.
"Headline inflation is likely to stay above the RBI's 6 per cent upper tolerance limit over the next few months. Against this backdrop, we expect another 25 bps rate hike, although the recent sharp correction in crude and rupee appreciation provides some breathing room to the RBI," Chhabra states.
RBI Hike Repo Rate Last Month
Earlier, in its last MPC meeting, the RBI hiked the benchmark policy rate by 0.25 per cent to 5.50 per cent–it was the first hike in nearly four years. However, the central bank changed its stance, signalling further rate hikes amid rising inflation, a weak rupee and high crude oil prices.
(With Input From PTI)