Retail inflation surged in October to a seven-month high, driven by a higher rate of increase in prices of food and fuel products. Government data showed Monday that the annual consumer inflation in October was recorded at 3.58 per cent from a year earlier, dampening chances of an interest rate cut by the central bank next month.
The increase in the CPI inflation in October 2017 was quite broad-based, led in part by an unfavourable base effect, a surge in inflation for vegetables and a rise in price levels for eggs and milk. While the inflation for food and beverages rose to a seven month high of 2.3 per cent in October 2017, the core-CPI inflation remained steady at 4.6 per cent.
The data comes at a time when analysts expect the GST Council decision on Friday to slash tax rates on 178 items to 18 per cent from 28 per cent could marginally lower retail inflation in coming months. “The recent revision in GST rates for many items is likely to offset the impact of the surge in crude oil prices. With the CPI inflation expected to track a rising trend over H2 FY2018 and print at around 4.5 per cent in March 2018, there is a low likelihood of rate cuts in the immediate term. We continue to expect an extended pause amid non-unanimous voting by the MPC in the December 2017 policy review,” said Aditi Nayar, an economist at ICRA. She said inflationary expectations could remain high in the second half of the fiscal year that ends in March.
“Housing inflation rose to a 40-month high 6.7 per cent in October 2017, reflecting the staggered impact of the revision in the HRA for Central Government employees on the housing index. Housing inflation is expected to continue to rise over the rest of this fiscal, printing between 7.0-8.0 per cent, exerting upward pressure on inflation. The individual announcements of pay revision by various state governments, which would continue into FY2019, would add to inflationary pressures, particularly given that some states are implementing the same retrospectively, entailing release of arrears. Additionally, the HRA revision at the state level may have a similar impact as that at the central government level, on the housing inflation,” she said.
RBI will hold a policy review on December 6. Retail inflation has been steadily rising since June, when it eased to 1.46 per cent — its slowest pace since figures were released in January 2012 based on combined data for rural and urban consumers. Crude prices have rallied, sending Brent crude to its highest since June 2015, a worry given that India imports most of its energy needs. Despite a cut in taxes, retail petrol prices have gone up by 7.6 per cent and
diesel by 6.6 per cent in the previous year. WITH REUTERS