India's inflation hits 4.62% in October

It is also said to be the fastest pace in 16 months.

The retail inflation in India has hit 4.62% in October, surpassing the Reserve Bank of India’s (RBI) medium-term target of 4% for the first time since July 2018, according to the statistics office.

It is also said to be the fastest pace in 16 months and is also higher than the market consensus of 4.35% YoY. Core inflation, however, decelerated further to 3.5% YoY in the same month, the slowest since the present series started in April 2015.

The uptick in headline inflation driven by a surge in food prices, the fastest pace in over three years at 7.9% YoY. Food and beverage prices rose 6.9% YoY, whilst food inflation in urban and rural areas surged 10.5% and 6.4% in October, respectively. Product-wise, vegetable inflation rose by a strong 26.1% YoY from September’s 15.5%, followed by pulses & products (11.7%), meat & fish (9.7%) and eggs (6.3%).

On the flipside, price growth in other clusters has broadly decelerated from September’s reading with deflation in the fuel & light (-2%) and transport & communication (-0.5%) clusters.

Clusters that saw sustained disinflationary pressures include health costs (5.6% YoY), household goods & services (+2.4%), education (+6.1%), recreation & amusement (+5%) and housing (+4.6%).

According to a UOB note, the higher inflation print in October was likely driven by supply-driven factors rather than an improvement in consumer demand. For instance, monsoon conditions have led to lower rainfall and poor harvest in recent months, leading to price hikes in food.

In contrast, the report also added that consumption demand in India is expected to remain low given the accelerating unemployment levels amidst a softening manufacturing sector and relatively pallid economic

“As such, we opine that the rise in inflation pressures is not fuelled by the recent rate cuts by the central bank. This is given the fact that monetary policy is proven by being more effective in influencing demand behavior, rather than supply conditions. With economic growth likely to stay soft in the coming quarter amidst limited fiscal policy space to-date, we continue to expect RBI to cut rates further by another 25 basis points in its December MPC meeting,” said Barnabas Gan, economist at UOB.