The continued spurt in food prices and fading of the high base effect likely led to a spike in October retail inflation figures. According to a report by the Union Bank of India, retail inflation based on the Consumer Price Index is seen jumping to 6.15 per cent, breaching RBI's 6 per cent tolerance band.
Retail inflation data for October is scheduled to be released on Monday evening.
India's retail inflation for September reached 5.49 per cent from 3.65 per cent in August, reflecting an uptick primarily due to higher food prices.
Price pressures last drove inflation above RBI's 6 per cent upper threshold previously in August 2023.
The Union Bank of India report said while the RBI monetary policy did mention the October inflation "hump", the extent of the inflation spike may not provide any comfort as the November reading is also tracking at elevated levels.
"Hence, we maintain our view of no change in rates in December policy with a shallow 50 basis points rate cut cycle starting February 2025," said the report.
Food prices have seen a rebound in September and October, primarily led by vegetables and edible oils. Going forward, all eyes will be on the Kharif harvest season, with a close watch on progress in rabi sowing as well.
Going forward, the report said that the food inflation is expected to ease by the last quarter of this financial year - January-March.
"The typical easing of food prices in the winter aided by improving prospects for rabi crops are likely to lead to normalization of headline inflation levels."
In the interim, however, upside risks to inflation from factors like food supply disruptions (if any), imported price pressures from edible oils, and the impact of Trump-led trade tariff hikes, among others need a close watch, it added.
Food prices continue to remain a pain point for the policymakers in India, who wish to bring retail inflation to 4 per cent on a sustainable basis.
The RBI has kept the repo rate elevated at 6.5 per cent to keep inflation contained. The repo rate is the rate of interest at which the RBI lends to other banks. (ANI)
