CPI ticks up 30 bps to 3.6% on costlier food, lower overall fuel inflation caps upside

Consumer price index (CPI)-based inflation jumped to a seven-month high of 3.6% in October, compared with 3.3% in September. The pick-up was driven by food inflation, which rose over 60 basis points (bps) on-month to 1.9%, while fuel inflation fell 30 bps to 6.1%, and core inflation edged up 10 bps to 4.5%.

Food inflation crept higher as vegetable prices surged because of unseasonal rains. Retail prices of onion and tomatoes – which have large weights in the food index – nearly doubled since September with consumers paying nearly Rs 40 per kg for each even in November.

Inflation in cereals and pulses continued to ease backed by near-normal southwest monsoon and bumper crop from last year. Healthy agriculture production will ensure that food inflation stays in check this fiscal, too. Also, global food inflation is forecast to stay benign, which will cap upside to domestic food inflation.

Meanwhile, core inflation edged up 10 basis points this month to 4.5%, led by higher inflation in housing, personal care and effects and clothing and footwear. The nature of these items – most of the pick-up is in services-related items -- suggests that part of the higher inflation could have been due to the implementation of Goods and Services Tax (GST). GST rates for most services are higher than the erstwhile service tax rate.

Overall fuel inflation (fuel and light and petrol and diesel) eased 30 bps to 6.1% on-month, led by lower inflation in petrol and diesel, which had seen a sharp increase in the preceding months. Inflation in liquefied petroleum gas (LPG), kerosene and other imported fuels continued to rise. With crude oil prices shooting up by ~14% on-year and rupee weakening, India’s import bill can have a bearing on inflation.