Retail inflation soared to a 14-month high of 6.21% in October, breaching the Reserve Bank of India’s upper tolerance level and dashing hopes of an early interest-rate cut following the US Federal Reserve’s monetary easing policy. 

Inflation based on the consumer price index (CPI) stood above the RBI’s upper tolerance band of 6% for the first time since the 6.83% rise in August 2023. 

Retail inflation was 5.49% in September 2024 and 4.87% in the year-ago period. 

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

The spike in inflation rate in October was mainly on account of persisting high food prices. According to the data released by the National Statistics Office (NSO) on Tuesday, inflation in the food basket increased to 10.87% in October, compared to 9.24% in September and 6.61% in October 2023. Food inflation makes up nearly half of the overall CPI basket.

“Year-on-year inflation rate based on All India Consumer Price Index (CPI) for the month of October 2024 is 6.21%. Corresponding inflation rates for rural and urban are 6.68% and 5.62%, respectively,” NSO said.

As per the latest data, vegetable prices jumped 42.18% in October. Wholesale prices of onions, for example, have spiked from Rs 40-60 per kilogram to Rs 70-80 per kilogram, as of 8 November. “High food inflation in October 2024 is mainly due to increase in inflation of vegetables, fruits and oils and fats,” the NSO said.

The NSO data showed that during October 2024 significant decline in inflation was observed in the ‘pulses and products’, eggs, ‘sugar and confectionery’ and spices subgroup.

Rate cut delay

Though economists are expecting inflation to cool down in the coming months on the back of a good monsoon and a better rabi harvest, the possibility of the RBI going for a repo rate cut in the near term is unlikely.

Aditi Nayar, chief economist at ICRA, said the core inflation, which inched up to 4% in October from 3.8% in September, will continue to be on the rise.

"With the CPI inflation breaching the 6% mark in October 2024 and expected to exceed the MPC's (monetary policy committee) estimate for Q3 FY2025 by at least 60-70 basis points, a rate cut in the December 2024 policy review appears ruled out, in spite of our projection of a sub-7% GDP growth print for Q2 FY2025. We anticipate that a shallow rate cut cycle of 50 bps may commence in February 2025 or later," she said.

Earlier in October, the RBI had left the benchmark repo rate unchanged at 6.5% for the tenth consecutive time since February 2023, citing concerns on the inflation front. The central bank, however, had changed its stance to neutral, opening the door for potential rate cuts. 

RBI Governor Shaktikanta Das had said that a shift to a neutral stance “should not be understood as a potential interest rate cut,” while emphasising that there are “significant upside risks to inflation.”