According to the Reuters poll of economists, due to a moderation in food prices, India’s consumer Price Index reached 6.40% which is the lowest in nine months.
The tolerance band of the inflation rate set by the Reserve Bank of India is 2%-6% but for the past few months, the inflation rate is above it. This led to a rise in interest rate by 225 basis points and a repo rate of 6.25%
If this inflation forecast comes true, it may lead to global food and commodity prices soaring high.
In Asia’s third-largest economy 40% of the consumer price index (CPI) basket is covered by food prices.
The second consecutive decline in the annual rate of inflation from 6.77% in October to 6.40% was predicted by 45 economists in the Reuters Poll. The forecasts were in a range of 6.00%-7.02%.
According to Robert Carnell, head of ING’s Asia-Pacific research Inflation will continue falling. India’s headline inflation index will drop roughly in line with the policy interest rates due to lower food prices, especially vegetables, and stable energy and gasoline prices.
After three successive 50 basis points in interest rates, RBI on Wednesday increased the interest rate by a nominal amount of 35 basis points which will again rise by 25 basis points early in 2023.
The central bank’s prediction of the inflation rate for the financial year 2022/23 is similar to the recent Reuters Poll which is 6.7%.
Noted economist at J.P. Morgan quoted “To be sure, policymakers will have to be vigilant because headline CPI inflation is still expected to be sticky, and average 6.5% between October 2022 and March 2023, in our view.”
Monthly inflation momentarily re-accelerated in September and October to 0.5-0.6% leading to an annual 6.5% in October. There is a risk of food inflation particularly from Cereals.