Perspective on CPI Data by Ms. Rajani Sinha, Chief Economist, CareEdge Ratings
Below the Perspective on CPI Data by Ms. Rajani Sinha, Chief Economist, CareEdge Ratings
“CPI inflation accelerated to a two-year high of 6.1% in October, reflecting increasingly broad-based price pressures. Inflation rose across 11 of 12 major CPI divisions, with the diffusion index climbing to 84. Core inflation also edged up to 4.5% from 4.3%. Food remained the primary driver, reflecting El Niño-related weather disruptions and elevated global food prices. Beyond food, higher global energy prices pushed up transport inflation, while cooking fuel and food costs sustained inflationary pressures in accommodation and food services.
Looking ahead, the inflation outlook remains exposed to weather related and geopolitical risks. The moderation in Brent crude prices following the US midterm election results is a positive. The result could support diplomatic engagement in West Asia once the new Congress convenes in January. However, elevated commodity prices and geopolitical uncertainties still warrant close monitoring. Domestically, weather-related risks remain significant, with rabi sowing off to a weak start. Low reservoir storage, depleted soil moisture, and drought conditions across several states pose further risks. The food inflation trajectory will therefore hinge on the progress of the kharif harvest and the pace of rabi sowing in the coming months. We expect food inflation to remain elevated, peaking at 8.2% in Q3 FY27 and averaging around 6.4% in FY27. Consequently, CPI inflation is projected to peak in Q3 FY27 and average around 5.0% for the full year. On the monetary policy front, given rising inflation expectations, and broadening price pressures there is a likelihood of 25-bps rate hike at the December policy meeting.”
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