​Surprise spike: On the Consumer Price Index

India’s consumer prices have gained fresh momentum over September and October, rendering the tangible softening in inflation to a pace below the official median target of 4% in the two months preceding them, a fleeting reprieve. From 3.65% in August, retail price rise had hit a nine-month high of 5.5% in September. To be clear, the Reserve Bank of India (RBI)’s Monetary Policy Committee (MPC), in its October review, had termed the inflation moderation as slow and uneven, and anticipated a reversal in September. A sharp surge in vegetable prices, particularly tomato, from the onset of the festival-packed month of October, and an uptick in edible oil prices after nearly two years of decline, had stoked anticipation that the inflation may end up a tad higher than September. However, the Consumer Price Index for October beat all economists’ projections by a wide margin, to rise 6.2%, the highest since August 2023 when it was up 6.8%.

Food prices remained the key bugbear as they have been through most high inflation periods this year. However, the uptick was alarming at 10.9%, the highest since last July, with urban consumers facing a sharper 11.1% uptick. Within the food basket, vegetable prices boomed 42.2%, the highest surge in almost five years, led by tomato prices that more than doubled year-on-year. Global edible oil price spikes also weighed in along with pricier fruits. The Finance Ministry, in its economic review late last month, had highlighted that the current bout of inflation is driven by a few food items and is not feeding into other items of consumption. Core inflation (excluding food and energy) has been well under the headline inflation rate and continued to be comfortable, and sufficient food grain buffers with a healthy kharif harvest, it said, would alleviate price pressures. These assumptions may need a rethink. The Governor of the RBI, Shaktikanta Das, had noted that core inflation had bottomed out, and is beginning to show — personal care and effects’ prices were up 11% in October. Even if food prices cool with fresh crop arrivals in coming months, other components of the price gauge are heating up. A durable decline in inflation that the MPC is waiting for to mull interest rate cuts is now a poor prospect while hopes of a December rate cut are out of the window. That this coincides with a period of slackening growth momentum and notably waning demand in urban India bodes ill for private investments. Policymakers at the Centre must acknowledge the interlinked challenge of inflation and consumption, so that an attempt can be made to fix what they can with the fiscal tools at their disposal — be it tax cuts, or better food management.