The RBI, had however, predicted that the food prices across the country would witness moderate rates as winter supplies enter the market. The inflation, which is measured by the Consumer Price Index (CPI), was recorded to be 3.38 per cent in October, last year.
Inflation in the food basket spiked to 7.89 per cent in October 2019, against 5.11 per cent the previous month. The Reserve Bank mainly factors in the CPI based inflation to arrive at its bi-monthly monetary policy. The Central Bank has been asked to keep the retail inflation at around 4 per cent.
The country, last month, saw exorbitant hike in onion and tomato prices due to out of season monsoon which led to disruption in supply chain and acquisition restrictions on traders. That was despite the ban imposed by the government on export of onions.
“The inflation print has surprised on the upside on account of vegetable inflation in October,” said Madhavi Arora, an economist at Edelweiss Securities told news agency Reuters.
Notably, this is the first month since August 2018 that retail inflation has breached the 4 per cent. A poll of 39 economists conducted by news agency Reuters between November 4 and 9 had forecast annual consumer price inflation rose to 4.25 per cent in October.
“Growth concerns have become far more important than inflation in the current context. We expect growth in Q2FY20 (April-September) to come in at 4.5% which would be a big concern,” said Anagha Deodhar, an economist at ICICI Securities told the news agency adding that more rate cuts are definitely on the cards,
However, the pickup in consumers inflation given a little relief for the Central bank to further ease the monetary policy as it has so far this year lowered the repo rate - or the key lending rate at to commercial banks - by 135 basis points to 5.15 per cent. A spike in inflation rate makes further policy rate cuts difficult for the central bank.
India’s industrial output fell at the fastest pace in over six years in September, adding to a series of weak indicators that suggests the country’s economic slowdown is deep-rooted and interest rate cuts alone may not be enough to revive growth.
Economists say the RBI will continue to cut rates as July-September growth could be worse than the previous quarter after industrial output contracted two out of three months during the period and core inflation continues to reflect weak demand.