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Food prices spur CPI inflation to 3.58%

Acceleration in Oct. retail price gains also driven by fuel and light segment as crude oil climbs globally

Retail inflation accelerated to 3.58% in October on the back of rising food and fuel prices, according to official data released by the Ministry of Statistics and Programme Implementation on Monday.

Inflation as measured by the Consumer Price Index (CPI) was 3.28% in September and as low as 1.46% in June. The food and beverages component of CPI saw a growth of 2.26% in October, the fastest pace since March, and up from 1.76% in September. This was mainly driven by a sharp uptick in vegetable prices.

Inflation in the fuel and light segment came in at 6.36%, up from 5.56% in September.

“The food influence is seasonal, but global crude prices are firming up and that will have a longer term adverse impact on Indian inflation,” said D.K. Srivastava, chief policy advisor at EY India. “The RBI will remain conservative and I don’t think there is any possibility of a rate reduction.”

Within the food segment, vegetable inflation quickened rapidly to 7.47% in October, from 3.92% in September. Price changes in almost all other key food segments — fruits, oils and fats, spices, pulses, and sugar and confectionery — hovered around the same levels as in September. Inflation in the milk and milk products category quickened to 4.30% in October from 3.87% in the previous month.

“Retail inflation has moved up in October on expected lines and is likely to breach the 4% mark in the coming months,” Rishi Shah, Senior Economist at Deloitte India, wrote in a note. “Important to remember that the RBI now looks at an inflation target range of 4% plus/minus 2%. It seems that pay revision in the public sector and a change in the tax regime has had some effect on prices while there has been some increase in vegetable prices due to erratic rains affecting supply.”

“Increasing inflation prints, rising crude oil prices coupled with uncertainty on account of U.S. central bank’s policy are likely to result in the RBI keeping rates unchangedin the upcoming policy meeting in December,” Mr. Shah added.

In October, the RBI’s Monetary Policy Committee had said that retail inflation was broadly moving along expected lines and projected that the rate would quicken to 4.2% to 4.6% over the following six months.

Oil prices are currently at about $64 a barrel, far higher than the average $50-55 a barrel seen over the last 18 months or so.

Core inflation, which excludes food and fuel inflation, eased marginally to 4.55% in October, from 4.60% in the previous month, breaking a three-month quickening streak.

Inflation in the other major categories of the CPI remained stable. The rate of growth of prices in the clothing and footwear category speeded up a tad to 4.76% in October, from 4.63% in September. Inflation in the housing sector accelerated to 6.68%, from 6.10% in the preceding month.

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