India’s inflation reached a 14-month high of 6.2% year-on-year in October, driven primarily by food prices, which rose 10.87%. The rise in inflation, combined with moderate industrial output growth, presents a challenging backdrop for the Reserve Bank of India (RBI) as it weighs its monetary policy options.

Vivek Rathi, National Director Research at Knight Frank India, highlighted the combined effects of food inflation, geopolitical factors, and currency depreciation on price pressures. “Price pressures remained persistent in October 2024, with food inflation as the primary cause,” he noted, adding that the depreciation of the rupee could exacerbate import inflation, reducing consumer purchasing power. He explained that “domestic and import-led inflation will likely keep price pressures elevated in the near term,” suggesting the RBI will not be quick to reduce its policy rate.

Rathi pointed to signs of a slowdown in some consumption indicators, emphasising that sustained price pressures are beginning to impact disposable incomes. “Sustained price pressures on disposable incomes will eventually affect growth, as some key consumption indicators are showing signs of decline,” he stated, underscoring the potential economic risks from prolonged inflation.

Nikhil Gupta, Chief Economist at the Motilal Oswal Financial Services (MOFSL) Group, further elaborated on the implications of the high inflation figures, pointing to broader economic signals. “Headline CPI inflation came in at 6.2% year-on-year in October, marking the highest level in 14 months and surpassing market expectations of 5.9%,” Gupta said. He added that both food and core inflation were higher than anticipated, indicating that inflationary pressures are widespread.

On the industrial front, India’s Index of Industrial Production (IIP) grew 3.1% year-on-year in September, slightly above market expectations but reflective of slowing momentum. Gupta explained, “The 3.1% IIP growth in September was marginally better than the consensus but indicates a slowing trend, with second-quarter IIP growth at 2.6%, the weakest in seven quarters.” The combination of high inflation and subdued industrial growth, according to Gupta, poses challenges for India, particularly as other global central banks are beginning to reduce rates in response to different growth and inflation dynamics.

Looking ahead, both analysts believe the RBI is likely to hold off on immediate rate cuts. “Given the current inflation trajectory and weak growth indicators, a rate cut in December is unlikely,” Gupta said. However, he added that “a first rate cut by the RBI could be expected in February 2025, contingent upon a significant deceleration in second-quarter GDP growth and its outlook.”

In this context, economists see little immediate relief from inflation for consumers. The interplay of persistent inflation, moderate industrial growth, and the pressures on consumer incomes adds complexity to the RBI’s policy path as it seeks to balance growth support and inflation control.

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

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