Indian headline inflation accelerates in October on surge in food prices

Indian headline inflation accelerated to a 16-month high in October, coming in above market expectations. On a sequential basis, the consumer price inflation rose 0.96 percent from September’s 0.55 percent. On a year-on-year basis, inflation accelerated to 4.62 percent, as compared to expectations of 4.35 percent. The rise was mainly driven by higher food inflation.

On a year-on-year basis, food prices rose 6.93 percent, driven by vegetables. Within the category, the prices of onion and tomato surged in the month. In the meantime, fuel inflation dropped for the fourth straight month.

Core rate eased for the third straight month, consistent with expectations. There was a widespread easing throughout all the major components in annual terms, except the “clothing and footwear” category.

Today’s print has exceeded the mid-point of the RBI’s target range of 4 percent for the first time since July 2018. Nevertheless, the uptick in overall inflation is expected to be short-lived as food prices might reverse in the next two to three months, said ANZ in a research report.

“We see little bearing of today’s higher-than-expected inflation print on the RBI’s upcoming monetary policy action. The central bank will instead choose to focus on reducing the output gap, which likely widened further in Q2 FY20 (quarter ending September 2019). We maintain our call for a reduction in the policy repo rate by 25bps on 5 December”, added ANZ.