India’s Consumer Price Index (CPI) inflation rose to a 14-month high of 6.21% year-on-year in October 2024, driven by rising food prices due to adverse weather and recent import duty increases. QuantEco Research reported that while the headline inflation print has surged, signs of a potential reversal in key food prices could moderate inflation pressures in the coming months.

According to QuantEco, “October’s inflation peak may soon be followed by a moderation, supported by a favourable winter season and increased availability of kharif produce.” The firm maintains its CPI inflation forecast for FY25 at 4.7%, reflecting cautious optimism as key food prices show signs of decline.

In October, food inflation reached a 15-month high of 9.69%, primarily influenced by the costs of vegetables and oils. QuantEco reported that food prices recorded a substantial month-on-month increase of 2.25%, with vegetables such as onions, tomatoes, and potatoes driving the trend. Oils and fats also contributed significantly, impacted by global price increases and recent import duty adjustments. However, QuantEco noted, “Tomato prices have dropped by 20.5% from their peak in September-October, and potato prices are beginning to stabilise, with onion prices levelling off.”

Fuel inflation in negative turf for 14th straight month

The analysis revealed that fuel inflation continued in negative territory for the fourteenth consecutive month, at -1.7% year-on-year in October, reflecting steady crude oil prices. Meanwhile, core CPI inflation (which excludes food, fuel, and volatile items) rose to 4.0%, its highest level since November 2023. This increase was primarily driven by costs in household services, transport, communication, and personal care, the latter affected by rising international gold and silver prices. Excluding precious metals, however, core-core inflation remained unchanged at 3.3%.

QuantEco expects rabi sowing conditions to support the easing of food prices, with reservoir levels at 86% of capacity nationwide. La Niña conditions, typically favourable for winter crops, are also anticipated to aid production, though potential challenges include low di-ammonium phosphate inventories and varying reservoir levels in some states.

QuantEco stated that, while inflationary pressures have been strong, they see “a reasonable chance of winter seasonality driving food prices down over the next three months.” If these conditions hold, QuantEco anticipates that the Reserve Bank of India may consider a 25-basis-point rate cut in its February 2025 policy review, marking a possible start to a rate-cutting cycle.

(This article was generated using AI and was reviewed by a journalist)

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