India October retail inflation at 7.61% versus 7.27% in September

India's retail inflation for October was at a 77-month high at 7.61 percent against 7.27 percent in September. The inflation based on the Consumer Price Index (CPI) was 4.62 percent for the same period a year ago.

CPI inflation has remained in excess of 6 percent, except in March this year.

"Protein based items (egg, meat and Fish), oil and fats, vegetables, pulse and products led food inflation rising to 11.07 percent (six months high)," said Devendra Pant, chief economist, India Ratings & Research.

People preferring a safe transport option for commute has resulted in transport and communication inflation to increase consistently from 4.3 percent in March to 11.2 percent in October.

"As a fall out of COVID-19, inflation from health and recreation and amusement inflation has increased and unlikely to ease in next few months," Pant said.

Despite the favourable base effect and the abundant kharif harvest, food inflation increased further in October 2020, led by vegetables.

"However, fresh arrivals in the market may help to cool off prices in the near term," Aditi Nayar, principal economist, ICRA, said.

Core inflation also rose to 5.7 percent in October, from 5.5 percent in September, led by a number of items such as clothing and footwear, housing, health, and recreation and amusement.

"While food inflation may decline with onset of winter and arrival of fresh onion crop, core inflation is likely to remain elevated in FY21," Pant said.

The inflation data puts monetary policy committee in a difficult situation, with inflation breaching 6 percent three consecutive quarters, growth being low and India entering recession (two consecutive quarters of negative growth) once GDP numbers for the second quarter are released.

"India Ratings expects an extended pause on policy rates," Pant said.

Earlier in October review, RBI had noted a bumper Rabi crop, moderate rises in minimum support prices for Kharif crops, among others augur well for the inflation outlook.

Meanwhile, the reserve bank expects the retail inflation to trend downwards in the second-half of FY 2021 and estimates the CPI to ease to 5.4 percent in the third quarter and 4.5 percent in the fourth quarter.

The retail inflation, which is based on the CPI and is referred to as the rate of increase in retail prices of essential items, is mainly factored by Reserve Bank while deciding on the key interest rates.