November inflation is expected to be lower than the 14-month high of 6.2 per cent in October, indicated a Finance Ministry report. It is ‘cautiously optimistic’ on the economic outlook.

“Going ahead, the inflation trajectory will largely be influenced by the price movements in edible oils, tomato, onion and potato. On the positive side, the early trend visible in vegetable prices in November so far signals significantly lower inflation in tomato and onion. The estimate of bumper kharif production is likely to lower food inflation in the upcoming months,” October edition of the Monthly Economic Review (MER), prepared by Economic Affairs Department, said.

Vegetable inflation surged to 57 a month-high of 42 per cent in October. Supply disruptions from heavy rain in major producing states contributed to price pressures in tomatoes, onions, and potatoes while elevated global prices drove up oil and fat inflation. The MER noted that there is upward movement in global prices of edible oil and it has impacted domestic process as well. However, it expects some relief on food inflation which will have impact on headline inflation.

“Favourable monsoon, adequate reservoir levels and higher minimum support prices are likely to boost rabi sowing and production,” the report said.

Employment front

Talking about overall economy, the report noted that many high-frequency indicators of rural and urban demand and supply side variables like Purchasing Managers’ Index and E-way bill generation have shown better performance in October. On the employment front, the formal workforce is expanding with notable increases in manufacturing jobs and a strong inflow of youth into organised sectors, it said. It may be noted that urban unemployment rate among persons of age 15 years and above decreased to 6.4 per cent in July-September period of the current fiscal form 6.6 per cent recorded during the corresponding period of the last fiscal.

Geo-political situation

The report flagged concerns on the geo-political situation and its impact on Indian economy. Softening demand in developed markets may pose challenges for India’s export recovery, though trade in the services sector is sustaining momentum. At the same time, the dynamics of global interest rates, earning growth and valuation, geopolitical developments and policy decisions of the next administration in the United States will determine the course of trade and capital flows in India.

Recent developments in the ongoing conflict between Russia and Ukraine have caused some concern in financial markets with safe-haven assets such as US Treasuries and gold finding a bid. Geopolitical conditions remain fragile. “India’s economic outlook for the coming months is cautiously optimistic, with agriculture likely to benefit from favourable monsoon conditions, increased minimum support prices and adequate supply of inputs,” it said.

The report has come a week before the release of economic growth data for July-September (Q2 of FY25) which is expected to show a dip in the number not just on yearly basis but on sequential basis as well. However, the report suggested that the second half of the current fiscal would show a better picture.

Related Topics