In line with expectations, India's headline inflation dropped to a five-month low of 4.87% in October 2023 from 5.02% in September 2023 on easing prices of some commodities and favourable base effect, according to data released by the Ministry of Statistics and Programme Implementation (MoSPI) today.

The retail inflation in rural India in October was recorded at 5.12%, down from 5.33% in the previous month, while it was 4.62% in urban India, marginally down from 4.65% in September 2023. The CPI (general) index surged to 185.3 in October 2023 from 184.1 in the previous month, with the rural and urban inflation index rising to 187 and 183.4, respectively. Consumer Food Price Index (CFPI) was recorded at 190.4, with rural and urban CFPI rising to 188.0 and 194.7, respectively.

With this, the retail inflation has remained within the RBI's target band of 2-6% for the second month straight. Among food items, vegetable inflation rate was recorded at 2.70%, pulses and products 18.79%; spices 22.76%; cereals and products 10.65%; and egg at 9.30%.

Food and beverages saw retail inflation at 6.24%, pan, tobacco and intoxicants at 3.87%; clothing and footwear at 4.45% and 3.59%, respectively. Health, education and personal care and effects saw retail inflation at 5.88%, 5.07%, and 7.84%, respectively.

Reserve Bank of India (RBI) Governor Shaktikanta Das, in the central bank's monthly bulletin for October 2023, said the RBI's inflation target was to tame it at 4%, not "2 to 6%".

"Our aim is to align inflation to the target on a durable basis while supporting growth," said Das, adding the declining trend in inflation was interrupted in July-August 2023 due to price shocks in certain food items. He said volatile energy and food prices amid geopolitical tensions and adverse weather conditions posed uncertainty to the inflation outlook.

He said the global economy was "slowing" under tight financial conditions, protracted geopolitical tensions, and increasing geoeconomic fragmentation. "Global trade is contracting. Headline inflation is easing but rules above the target in major economies."

As per Das, major central banks were signalling a "peaking of their rate hike cycle". However, there were indications the "tight monetary policy stance could persist for longer" than anticipated earlier. "Sovereign bond yields have firmed up, the US dollar has appreciated, and global equity markets have corrected."

In his inflation outlook, Das said while "near-term inflation is expected to soften" on the back of vegetable price correction, especially in tomatoes, and the reduction in LPG prices, the future trajectory will be conditioned by a number of factors, including demand-supply mismatches, El Niño conditions, among others.

The RBI has projected the CPI inflation at 5.4% for 2023-24, with Q2 at 6.4%, Q3 at 5.6% and Q4 at 5.2%. CPI inflation for Q1:2024-25 is projected at 5.2%.

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