India's retail inflation eases to four-month low of 4.87% in October

India's annual retail inflation eased to four-month low of 4.87% in October from 5.02% the previous month, government data showed on Monday.

Food inflation, which accounts for nearly half of the overall consumer price basket, rose 6.61% in October as compared with 6.56% in September.

The Consumer Price Index (CPI) based inflation in October was below the Reserve Bank of India's (RBI) upper tolerance band of 4-6% for a second consecutive month but the central bank last month kept its key lending rate steady for a fourth consecutive policy meeting and said it remains focused on bringing inflation close to the target of 4%.

"The CPI inflation came in line with our expectations. The moderation provides some relief, especially as core inflation has remained comfortable. However, we expect the trend of sub-5% headline inflation to remain brief with most of FY24 ahead likely to remain above 5%. Overall, we continue to expect the MPC to remain on an 'extended pause' phase in rates, with liquidity being used as a more frequent tool to manage the stance," Upasna Bhardwaj, chief economist, Kotak Mahindra Bank told Reuters.

"CPI inflation moderated below 5% in October. However, it was higher than expected driven by a sequential increase in vegetables (particularly onions) and pulses inflation. Core inflation inched lower to 4.2%. Inflation could inch back up above 5% next month and food inflation continues to remain a concern," Sakshi Gupta, principal economist, HDFC Bank told Reuters.

The Reserve Bank's Monetary Policy Committee (MPC), in its October meeting, projected CPI inflation at 5.4% for 2023-24, a moderation from 6.7% in 2022-23.

The central bank mainly factors in the retail inflation while arriving at its bi-monthly monetary policy.

"While the uptick in foodgrain prices following an uneven monsoon has manifested in prices in October, higher prices of some vegetables like onions would be partly absorbed by the typical seasonal downtrend in many other vegetables, offering some respite," said Aditi Nayar, an economist at ICRA.

"The CPI inflation would climb to 5.6% by December 2023, and remain in a wide range of 4.9-5.6% thereafter for the next two quarters," Nayar said.