India: Inflation drops to lowest level since June in October
Inflation came in at 4.9% in October, which was down from September’s 5.0% but slightly exceeded market expectations. October’s reading marked the weakest inflation rate since June. The slowdown was largely due to lower core inflation, with the prices of clothing, healthcare and household items all rising at a weaker pace. However, food price inflation was stable and remained elevated, likely due in part to El Niño; recent government estimates suggest that the country’s output of kharif crops—rice, maize, pulses and millets—is down year on year so far. As a result of the October result, the trend pointed down mildly, with annual average inflation coming in at 5.7% in October (September: 5.8%). Lastly, consumer prices increased 0.65% in October over the previous month, swinging from the 1.13% drop logged in September.
Our panelists expect inflation to decline to 4.7% in 2024, below the Central Bank’s projection of 5.4%. Inflation should decline as past rate hikes filter through the economy and as food prices normalize. Unexpected rises in commodity prices are an upside risk; the El Niño weather pattern could hurt agricultural output, stoking food prices, while conflicts in the Middle East and Eastern Europe could push up energy prices.
Analysts at Nomura said:
“We expect vegetable prices to sharply correct in December and through Q1 2024, with headline inflation likely to average 5.3% in FY24 and 4.4% in FY25, close to the RBI’s projections.”