CPI inflation may have hit 9-month low of 6.4% in November, October IIP down 0.4%

Inflation dynamics

According to Rahul Bajoria, Chief India Economist for Barclays, food inflation likely fell to 6.2 percent in November from 7 percent in October.

"We continue to see some small price increases in cereals and pulses, but a loss of momentum in perishables such as vegetables is likely," Bajoria said in a note on December 5.

Of the 22 food items for which the Department of Consumer Affairs compiles data, 17 saw a month-on-month increase in prices in November – up from 15 in October – including an 11 percent increase in onion prices.

The five food items the prices of which were lower in November compared to October, as per Consumer Affairs Department data, were rice (down 0.3 percent), palm oil (down 0.6 percent), tea (down 0.7 percent), vanaspati oil (down 0.8 percent), and tomato (down 17 percent).

"Moreover, cost-push pressures have increased the prices of many consumer goods and services," Nitsure added.

If the movement in food prices was mixed, the favourable base effect is also not expected to be as strong as it was in October.

In October 2021, the general index of CPI had increased by 1.4 percent month-on-month, creating a hugely favourable base effect for October 2022 of 140 basis points, RBI staff wrote in the monthly State of the Economy article las month.

In November 2021, the sequential increase in the index was half that of the previous month at 0.7 percent, only slightly higher than the average month-on-month increase of 0.6 percent seen in the index over the last few months. This suggests the base effect was not as favourable last month.

Policy impact

The inflation data for November will come in just days after the RBI's Monetary Policy Committee (MPC) increased the repo rate by 35 basis points (bps) to 6.25 percent on December 7 – the fifth time it has raised the policy rate in eight months.

As per the RBI's latest forecasts, CPI inflation is seen averaging 6.6 percent in October-December before cooling to 5.9 percent in January-March 2023 and 5 percent in April-June 2023.

Economists are largely of the view that the MPC may increase the repo rate only once more in February – if at all – before pausing and taking stock of its actions.

"With two out of six MPC members expected to abstain from voting on rate hikes in the next policy review in February, we now expect the RBI to opt for a 25-basis-point increase in repo rate, followed by a pause thereafter,” QuantEco Research said in a note on December 7.

The MPC is scheduled to next meet on February 6-8.

IIP growth

The statistics ministry will also release the Index of Industrial Production (IIP) data for October on December 12, which is expected to show that industrial output contraced by 0.4 percent after growing by 3.1 percent in September.

Data released on November 30 showed India's core sector growth slowed to a 20-month low of 0.1 percent in October, with the overall index of the core industries staying unchanged from the previous month at 138.0.

Given that core industries account for around 40 percent of the IIP, the former's performance is seen as a lead indicator of the latter. In fact, more than half of the 16 economists polled expect industrial production to have contracted in October on a year-on-year basis.

"While we see the likely decline in October as temporary, IIP growth is likely to stay in low single digits on base effect and the impact of a global growth slowdown on domestic activity, along with weak rural demand, in the coming months," noted Kanika Pasricha, Economist at Standard Chartered Bank, who expects industrial production to have shrunk by 1 percent.