India inflation likely rebounded in November on higher food prices

BENGALURU: India's retail inflation likely picked up in November due to higher food prices after declining for three months, bringing it closer to the upper end of the Reserve Bank of India's (RBI) 2 percent-6 percent target range, a Reuters poll found.

Volatile food prices, which account for almost half of the inflation basket, saw an uptick in November, largely led by household staples such as onions, tomatoes and pulses, economists said.

The Dec. 5-7 Reuters poll of 41 economists predicted the consumer price index (CPI) rose at an annual rate of 5.70 percent in November, faster than 4.87 percent in October. Forecasts ranged from 4.50 percent-6.50 percent, with a handful expecting it to breach the central bank's top end of the target band.

However, the RBI is unlikely to act to help with the rising cost of food prices. Governor Shaktikanta Das said last month inflation was vulnerable to "recurring and overlapping" food price shocks.

"Inflation ticked up in November...partly due to higher food prices. Rice prices continued to rise by double digits, onion prices nearly doubled, and tomato price inflation also picked up again," said Alexandra Hermann at Oxford Economics.

"Base effects may keep inflation at somewhat higher levels through December but we do expect price pressures to ease going into 2024. While food and oil prices could stand in the way ... we believe upside risks are limited."

Inflation in Asia's third largest economy was expected to average 5.4 percent and 4.8 percent this fiscal year and next, respectively, a separate Reuters poll showed.

Meanwhile, the RBI was expected to keep its repo rate on hold this week and through to at least July. "We expect the RBI to note the volatility from vegetable prices; however, it is likely to keep its FY24 inflation estimate unchanged at 5.4%," noted Upasana Chachra at Morgan Stanley.

The survey also showed wholesale price inflation, the change in producer prices, likely rose to 0.08 percent year-on-year in November, after a 0.52 percent contraction in October. Barclays in a report said India's consumer price index-based inflation, or retail inflation, might have risen above the RBI's tolerance limit of 6 per cent in November, from 4.87 per cent in October.

"We estimate that CPI inflation rose in November to 6.15 per cent year-on-year (YoY), a sharp reversal from the moderating trajectory over the past couple of months (October: 4.9 percent, September: 5 percent). Core inflation likely remained stable, and we expect further deflation in fuel prices," Barclays said in a report.

The global financial firm observed the rise will be driven primarily by higher food inflation, where the rise in vegetable prices (onions, tomatoes) and persistence in a few non-perishable items (pulses, in particular) will likely pressure the headline.

Barclays expects food inflation to accelerate to 9.2 per cent for November from 6.2 per cent in October due to a double-digit sequential rise in vegetable prices.

On the other hand, fuel and light inflation may remain in deflation, at -1.3 per cent YoY for November against -0.4 per cent in October. Core inflation may remain broadly stable at 4.3 per cent YoY for November, according to Barclays' estimates.

"Despite continued strength in domestic demand, core inflation has remained under control. This may be due to either higher aggregate supply or the impact of supply shocks on the second-order effects on inflation (for example, recurring food price shocks can generalise to higher wages or transportation costs, or affect inflation expectations)," said Barclays.

"Input and output price PMIs for both manufacturing and services sector for November also showed easing input cost pressures, and consequently, a slower pace of rise in selling prices."

Barclays expects the RBI to remain on a cautious hold this week at its MPC meeting. "While stable core inflation should be a relief, it will be cautious of the impact of elevated food inflation on inflation expectations."