October's Inflation Surge Raises Concerns for Policymakers

October retail inflation in India is expected to breach the 6% mark, driven by rising food costs. The Union Bank of India predicts a rise to 6.15%, surpassing RBI's tolerance band, with food inflation likely to ease in early 2024. A rate cut is anticipated by 2025.

October retail inflation in India is projected to surge to 6.15%, according to a Union Bank of India report, exceeding the Reserve Bank of India's tolerance ceiling of 6%. The rise is attributed to escalating food costs, further amplified by a diminishing high base effect.

In September, retail inflation climbed to 5.49%, up from 3.65% in August, primarily driven by food price increases. Previously, inflation surpassed 6% in August 2023. The anticipated October spike, acknowledged in the RBI's monetary policy, remains a point of concern as November's figures also show elevated levels.

The Union Bank report suggests a stabilization in rates, maintaining no changes for December, with a minor 50 basis points cut projected to begin in February 2025. The trend reflects volatility in food prices, especially in vegetables and edible oils, impacting overall inflation.

Looking ahead, the focus shifts to the Kharif harvest season and rabi sowing progress. The report forecasts a potential easing of food inflation by the fiscal year's final quarter. Upside risks remain from supply disruptions, global price influences, and tariff impacts, necessitating vigilant monitoring.

Addressing these pressures remains pivotal for Indian policymakers aiming to sustain retail inflation at 4%. The Reserve Bank has sustained a 6.5% repo rate, ensuring inflation control. The rate determines the interest at which RBI lends to other banks, keeping inflationary pressures in check.

(With inputs from agencies.)