India’s consumer price inflation is expected to rise to 5.81% in October, marking a 14-month high, primarily driven by surging vegetable and edible oil prices, according to a Reuters poll of economists. This marks an increase from 5.49% in September, which was already higher than anticipated.
Key contributors to the rise include tomatoes, a staple in Indian kitchens, whose prices have surged due to uneven rains disrupting production. The government’s recent decision to hike import taxes on edible oils by 20 percentage points in mid-September further contributed to the price spike, squeezing household budgets.
Inflation is likely to exceed the Reserve Bank of India’s (RBI) tolerance threshold of 6% in some cases, with economists predicting a range from 5.00% to 6.30%. Almost a third of economists surveyed expect inflation to hit the upper boundary of the RBI’s 2%-6% target range.
Dipanwita Mazumdar, economist at Bank of Baroda, highlighted the broad-based price pressures, particularly in food items. She noted that lower arrivals of tomatoes, caused by the unseasonal rains, and imported inflation from rising edible oil costs are major factors driving inflation. Furthermore, she pointed out that rising climate risks, a weakening rupee, and geopolitical tensions could further intensify inflationary pressures.
The weakening of the Indian rupee against the strong U.S. dollar also poses a challenge, potentially preventing inflation from easing quickly. In addition, core inflation, which excludes volatile items such as food and energy, is estimated to be around 3.60% for October, partly due to increased festive demand and rising gold prices.
Despite these inflationary concerns, economists caution that the Reserve Bank of India is unlikely to reduce interest rates in the near term. While some predict a rate cut in December, the RBI’s forecast of strong economic growth (7.2% for the current fiscal year) suggests that additional support for growth may not be immediately necessary.
Overall, while inflation remains a pressing issue, economists suggest that the situation may persist until 2026, with any significant reduction in inflation unlikely in the short term.
