Inflation soars to 14-month high of 6.2% in Oct, breaches RBI's tolerance level

New Delhi: Retail inflation breached the Reserve Bank's upper tolerance level, soaring to a 14-month high of 6.21 percent in October mainly on account of rising food prices.

Inflation based on the consumer price index (CPI) was 5.49 percent in September and 4.87 percent in the year-ago month.

Retail inflation trended below the RBI's upper tolerance band of 6 percent since September last year. It was at 6.83 percent in August 2023.

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The RBI, which mainly factors in the CPI while arriving at its bi-monthly monetary policy, has been tasked by the government to ensure retail inflation remains at 4 percent with a margin of 2 percent on either side.

According to the data released by the National Statistics Office (NSO) on Tuesday, inflation in the food basket increased to 10.87 percent in October, compared to 9.24 percent in September and 6.61 percent in October 2023.

"Year-on-year inflation rate based on All India Consumer Price Index (CPI) for the month of October 2024 is 6.21 percent. Corresponding inflation rates for rural and urban are 6.68 percent and 5.62 percent, respectively," NSO said.

The NSO data showed that during October 2024 significant decline in inflation was observed in the 'pulses and products', eggs, 'sugar and confectionery' and spices subgroup.

"High food inflation in October 2024 is mainly due to increase in inflation of vegetables, fruits and oils and fats," the NSO said.

Aditi Nayar, chief economist, ICRA the CPI inflation worryingly soared further to a 14-month high in October 2024, breaching the upper limit of the MPC's medium-term target range of 2-6 percent.

"The sequential hardening in inflation was largely led by the food and beverages segment, followed by a mild uptick in the core items," she said.

Nayar further said that with the retail inflation breached the 6 percent tolerance level and expected to exceed the MPC's estimate for the third quarter FY2025 by at least 60-70 bps, "a rate cut in the December 2024 policy review appears ruled out."

"We anticipate that a shallow rate cut cycle of 50 bps may commence in February 2025 or later," she said.

The RBI had kept the key short-term lending rate unchanged after the last monetary policy review in October citing concerns on the inflation front.

The price data are collected from selected 1,114 urban markets and 1,181 villages covering across the country by the NSO on a weekly roster.

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