Consumer Price Index (CPI) for October 2019

CPI inflation breaches RBI target in October led by spike in food prices.

India's Consumer Price Index (CPI) shot up to a 16-month high of 4.7% YoY in October 2019, breaching RBI's medium-term inflation target of 4% for the first time in 15 months. The CPI inflation stood at 4% YoY in the previous month. The spike in retail inflation was primarily led by a surge in food inflation.

The food inflation, as measured by the consumer food price index (CFPI), rose to a three-year high of 7.9% YoY in October, mainly due to soaring prices of vegetables, fruits, and pulses. The inflation in food prices has been on a rising trend for the past eight months due to supply disruption led by delayed and uneven monsoon across the country. The majority of the contribution to the increase in food prices came from the rural economy as inflation in the same has doubled in a month from 3.1% YoY in September to 6.3% YoY in October.

On the other hand, the inflation in miscellaneous, services, pan, tobacco, and intoxicants led to a moderation in core inflation to 3.6% YoY as against 4.2% YoY in the last month. Thus, indicating the prevailing subdued consumption demand in the economy.

Given that CPI has breached the RBI's medium-term target of 4% and is in sharp contrast with the shrinking industrial activity in the economy, this may complicate the monetary policy decision in December. The likely rate cut decision will depend upon the flexibility of RBI in dealing with the retail inflation and the July-September quarter GDP number expected to be released later this month.