Inflation may be slower but keep an eye on food prices

In a welcome, albeit expected relief, India's headline Consumer Price Index (CPI) inflation cooled to 6.8% in October from 7.4% in September, on a year-on-year (YoY) basis. This easing was led by a sharp drop in food inflation, especially for vegetables. Nevertheless, the headline print remained above the 6.0% upper threshold of the Monetary Policy Committee's medium term forecast range of 2.0-6.0% for the 10th consecutive month.

- Aditi Nayar

The dip points to the beginning of an extended moderation over the next six months on account of a favourable base effect that is set to intensify over this duration. The headline CPI inflation bottomed out at 4.3% in September 2021 and steadily rose to 6.0% by January and further to an eye-watering 7.8% by April. At the current juncture, we expect a broadly significant moderation in inflation to around 5% by April 2023. However, the extent of this moderation is likely to be impacted by several factors, including movements in global commodity prices, potential supply disruptions in perishables and a robust demand for services.