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Below the Perspective on CPI data by Rajani Sinha, Chief Economist, CareEdge Ratings

“CPI inflation continued to stay on a downward trajectory easing to 0.3% in October which is in line with our expectations. The positive impact of the GST rationalisation and deflation in the food and beverages category supported the lower inflation print. Deflation in the food basket deepened further to 3.7% in October from 1.4% last month. However, further acceleration in the already double-digit inflation seen in precious metals pushed up the core CPI inflation to 4.4% in October. Excluding precious metals, core CPI inflation was seen at a benign 2.5%.

Overall, we expect food inflation to stay at moderate levels on the back of healthy agricultural activity and a favourable base. Furthermore, adequate reservoir levels, and strong kharif sowing bode well for food price stability. However, the late withdrawal of the monsoon and crop damage amid heavy rains in certain regions could pose some risk. Additionally, double digit inflation in the edible oil basket remains a key monitorable, particularly as global vegetable oil prices stay elevated. On the external front, global commodity prices are broadly expected to remain benign given the weak global growth prospects, overcapacity in China and OPEC’s decision to raise crude oil output.

With the GST rate rationalisation rolled out towards the end of September, its positive impact was reflected in October’s lower inflation reading. Going forward, inflation is projected to average 0.9% in Q3 before rising to 3.1% in Q4 FY26. With food inflation subdued, we project average inflation for FY26 at 2.1%. From a monetary policy perspective, moderating inflation provide the RBI with greater room to focus on supporting economic growth, in midst of continued external headwinds and uncertainties surrounding the trade negotiations with the US. If growth weakens in H2 FY26, the latest inflation readings could create scope for a rate cut.”

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