Poll | CPI inflation may drop to 6.7% for October on favourable base

In October 2021 - the base period for the forthcoming inflation number - the general index of the CPI jumped 1.4 percent month-on-month. Meanwhile, the index has increased, on average, by 0.5 percent month-on-month in each of the last four months. As such, a similar increase in the index last month will see inflation fall to 6.5 percent.

While inflation is set to decline, economists say the sequential price momentum continued in October.

"While food inflation is likely to moderate due to base effects, food prices still rose sequentially due to a spike in perishables such as vegetables, fruits and milk," noted Rahul Bajoria, chief India economist at Barclays.

Of the 22 food items for which the Department of Consumer Affairs compiles data, 15 saw a month-on-month increase in prices. This includes a 12 percent rise in the prices of tomatoes, a 7.6 percent rise in onion prices, and a 1.5 percent increase in milk prices.

According to Bajoria, food and beverage inflation likely eased to 6.7 percent in October from 8.41 percent in September.

Uncomfortably high

While headline retail inflation has come off appreciably from the near eight-year high of 7.79 percent in April, it remains uncomfortably high.

October will mark the entry of CPI inflation into a fourth year above the RBI's medium-term target of 4 percent. The last time inflation was under 4 percent was in September 2019, when it had come in at 3.99 percent.

It will also be the tenth straight month in which it will be outside the central bank's mandated 2-6 percent tolerance range. With the RBI's failure confirmed by the September inflation number of 7.41 percent, the Monetary Policy Committee (MPC) met last week to discuss the report the central must submit to the government.

A second successive failure of the RBI, which would occur if average CPI inflation is outside the 2-6 percent band in the next three quarters till April-June 2023, is, however, unlikely.

The RBI's latest forecast says inflation will average 6.5 percent in October-December 2022 and 5.8 percent in January-March 2023 before easing to 5.2 percent in FY24.

"…if the current trend persists, then CPI inflation is likely to average higher than RBI's forecast of 6.5 percent average for October-December 2022," noted Kaushik Das, Deutsche Bank's chief economist for India.

Das sees CPI inflation averaging 6.9 percent in both, the third quarter of FY23 and FY23, before easing to 5.5 percent in FY24.

IIP growth

Before the CPI data, the statistics ministry will release industrial growth data for September on November 11.

India's Industrial growth, as measured by the Index of Industrial Production (IIP), is seen rising to 2.3 percent in September from August's 18-month low of -0.8 percent, according to the median of estimates of 14 economists polled by Moneycontrol.

"While a fading of unfavourable base effects was likely the primary driver, the performance of lead indicators also improved—both exports and core sector growth picked up month on month, and auto production growth stayed strong," said Kanika Pasricha, an economist at Standard Chartered Bank.

The performance of the core industries is key to industrial growth as they make up around 40 percent of the IIP.

"Many product groups across the manufacturing sector expected a noticeable improvement in the festival season that starts from Onam, covers Durga Puja, and ends with Diwali. It needs to be seen whether this momentum would sustain beyond the festive cheer," added Rupa Rege Nitsure, group chief economist at L&T Financial Services.