By Pranoy Krishna
BENGALURU (Reuters) -India’s consumer inflation rate likely plunged to the lowest in at least a decade in October on a sustained fall in food prices, and intensified by a higher base of comparison last year, according to the median forecast in a Reuters poll of economists.
Some economists argued that a cut in the Goods and Services Tax, effective from late September, also contributed to the decline. Others said this may mark the trough in inflation.
Inflation is cooling rapidly even as the latest official data showed Asia’s third-largest economy grew nearly 8% in the April-June quarter, with the central bank expected to cut interest rates again next month.
Vegetable prices have fallen by double digits for six consecutive months on an annual basis, keeping overall food inflation, which accounts for nearly half of the consumer price index (CPI) basket, in check.
The CPI inflation rate tumbled more than a full percentage point to 0.48% in October from 1.54% in September, according to a November 4–7 Reuters poll of 42 economists. That would be the lowest in the current 2012‑base CPI series, introduced with the January 2015 release.
Early next year, the government will shift the reference year on which the index is based to 2024
Forecasts for the data, due for release on November 12, ranged between -0.21% and 2.10%.
“Base effects are most supportive in this month, as it mirrors the sharp increase in vegetable prices we had seen in October last year…(and) despite persistent unseasonal rainfall, food inflation remains contained in India, and we see distinct and broad-based disinflation across the country,” wrote Rahul Bajoria, India & ASEAN economist at BofA Securities.
Bajoria said there were downside risks to his inflation forecasts for this fiscal year, “largely reflecting lack of a food price pick up, which we typically see during the summer months.”
Economists have warned for several months that inflation has likely bottomed out, only for it to fall further the next month.
“However, with unseasonal rainfall starting to impinge on supply, the risks appear skewed for a supply side shock to materialize, and with government raising import duties on pulses, several large sources of disinflation for food prices in 2025 might be on their last legs,” Bajoria added.
While inflation has been below the Reserve Bank of India’s 4% target since February, economists say this masks shifts in household spending patterns.
The Household Consumption Expenditure Survey for 2023/24 showed the share of food in the average Indian household’s budget has declined.
“Does the inflation basket accurately reflect consumer expense needs? I would say it’s partial,” said Kanika Pasricha, chief economic adviser at Union Bank of India.
“This is exactly the reason why the government said … it is coming up with a new CPI basket with a new base, which will probably have the share of the weight of food, in the CPI basket at 40% or lower in order to accurately reflect that impact.”
Core inflation, which excludes volatile food and fuel components and better reflects underlying demand, was expected to have eased to 4.30% in October from an estimated 4.50% in September. The statistics office does not publish official core inflation data.
The wholesale price index likely dropped 0.60% year-on-year in October after a gain of 0.13% in September, the survey showed.
(Reporting by Pranoy Krishna; Polling by Devayani Sathyan and Vijayalakshmi Srinivasan; Editing by Vivek Mishra, Ross Finley and Kim Coghill)
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