Indian retail inflation speeds up as firms pass on rising costs

·2-min read
A vendor waits for customers at a vegetable market in Ahmedabad

By Manoj Kumar and Aftab Ahmed

NEW DELHI (Reuters) -India's retail inflation accelerated in October, led by a rise in manufacturing prices but remaining within the medium-term target of the central bank, which is expected to keep interest rates on hold at its review meeting early next month.

Consumer prices rose 4.48% in October from the same month last year, speeding up from September's 4.35% and outpacing the consensus Reuters poll forecast of 4.32%, Ministry of Statistics data showed on Friday.

Food prices, which contribute to nearly half of the consumer price index (CPI) rose 0.85% year-on-year in October, compared with 0.68% a month before. Prices of edible oil rose nearly 34% from a year ago period while vegetable prices fell by one-fifth.

Economists said rising commodity and manufacturing prices pose a risk of broadening inflationary pressures in coming months as companies pass on rising energy and raw material costs to consumers.

Global energy prices and the possibility of a rise in food prices due to shortages of fertilisers pose a risk in the short term, said Garima Kapoor, economist at Elara Capital, Mumbai.

"We retain our 2021/22 CPI inflation projection of 5.4% with upside risks having become more pronounced," she said.

Annual core inflation, excluding volatile food and energy prices, was estimated at between 6% and 6.1% in October, according to three economists, compared with 5.75% to 5.8% in the previous month.

The government doesn't release core inflation numbers.

Consumer prices in the U.S. surged in October, in worrying news for policymakers in emerging economies such as India as it poses a risk of early monetary tightening by the Federal Reserve.

Reserve Bank of India Governor Shaktikanta Das said on Thursday that recent fuel tax cuts would help meet its inflation estimate of 5.3% for 2021/22 fiscal year ending in March, within the 2-6% target.

Prime Minister Narendra Modi's administration cut taxes on petrol and diesel last week, aiming to contain inflationary pressures, a move that economists say could help lower consumer price inflation by about 10 basis points.

India's retail fuel prices, which rose 14.35% year-on-year in October compared with 13.63% in the previous month, have eased after the tax cuts.

The RBI's monetary policy committee is scheduled to meet Dec. 6-8 and is widely expected to leave the repo rate unchanged at 4%.

(Additional reporting by Rama Venkat in Bengaluru, Editing by Timothy Heritage and Hugh Lawson)

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