October retail inflation may have breached RBI's 6% upper limit: BS poll

 The breach, they say, is owing to rising food prices and an unfavourable base effect due to rate rationalisation in goods and services tax last year. The estimates range between 5.9 per cent and 6.11 per cent, with the median estimate being 6.05 per cent.

 The Statistics Office (NSO) is scheduled to release the October data on November 12.

 If the estimates hold, it will be the first time since October 2024 that the headline inflation rate will be found to have crossed 6 per cent. The print will also be the last full inflation reading the Monetary Policy Committee (MPC) sees before its December 2-4 meeting.

 According to Rajani Sinha, chief economist at CareEdge Ratings, the uptick is driven by a broadbased increase in food prices, with meat and fish, edible oils, fruit, vegetables and sugar expected to record double-digit inflation rates.

 Sharing similar concerns, Aditi Nayar, chief economist, Icra, said the inflation rate in the food and beverages division in October was expected to show more than 8 per cent amid hardening across sub-segments. Nayar expects the core inflation rate (excluding food and fuel prices) to rise to 4.6 per cent from 4.3 per cent in the preceding month.

 Madhavankutty G, chief economist at Canara Bank, put the October number at 6.05 per cent. He attributed the increase not only to prices of food, particularly protein, but also to a weaker rupee.

 “October was the month when we saw rupee weakness. The landed costs of imports were high due to the double impact of rupee weakness and the costs of insurance and freight. November, however, could give some respite due to rupee strength,” he reckoned.

 With the inflation rate expected to move above the RBI’s target band, economists increasingly expect the central bank to raise rates again.

 “We expect a second successive rate increase in December,” said Radhika Rao, senior economist, DBS Bank. Sinha reckoned that a 25-basis point (bp) rate increase at the December MPC meeting appeared increasingly likely.

 On October 7, the RBI raised the repo rate by 25 bps to 5.5 per cent.

 Bank of Baroda’s Essential Commodities Index, which tracks the retail prices of 20 essential commodities, rose 11.1 per cent year-on-year in October, from 9.6 per cent in September.

 “Companies in consumer goods are limiting the pass-through of higher input costs to consumers to support growth in volumes in an inflationary environment. This is likely to insulate core [inflation] to some extent,” the bank added.

 Economists said the outlook was exposed to both weather and global commodity prices. “Domestically, deficient rain remains a key concern, with implications for kharif output. More importantly, the upcoming rabi season is starting from a weaker base, given lower reservoir levels and inadequate soil moisture,” Sinha said.

 She added that ample buffer stocks should cushion cereal prices.

 CareEdge expects the inflation rate to peak in Q3 FY27 and average about 5 per cent for the full year.

 Nayar said that if the recent cooling in global prices of crude oil sustains, it would reduce the need for oil-marketing companies to raise prices of petrol and diesel, thereby curtailing another round of inflationary pressures.