Inflation soars to over 6-year high of 7.61%

New Delhi: Costlier vegetables and eggs pushed up retail inflation to a nearly six-and-a-half year high of 7.61 per cent in October, keeping it significantly above the comfort zone of the Reserve Bank.

Retail inflation stood at 7.27 per cent in September 2020, according to the Consumer Price Index (CPI) data released by the government on Thursday.

Retail inflation has remained above 7 per cent for the second month in a row. The earlier high was 8.33 per cent in May 2014. The Consumer Food Price Index (CFPI), according to the data, rose to 11.07 per cent in October from 10.68 per cent in the previous month of September. It was 4.62 per cent in October 2019. Vegetable prices rose 22.51 per cent in October on year-to-year basis. Inflation in protein-rich meat and fish quickened to 18.70 per cent, while in eggs it rose to 21.81 per cent during the month. In September, the respective inflation prints were at 17.60 per cent and 15.47 per cent. The inflation print in 'fuel and light' category softened a tad at 2.28 per cent during the month (from 2.87 per cent in September). Price rise in 'milk and products' also reduced to 5.20 per cent (from 5.64 per cent).

The RBI, which mainly factors in retail inflation while arriving at key policy rates, has been mandated by the government to keep inflation at 4 per cent (+, - 2 per cent).

Aditi Nayar, economist at ICRA, said: "While a base effect and some softening in vegetable prices may pull down the CPI inflation in the ongoing month, it is expected to recede below 6 per cent only in December 2020.With the level of the headline and core CPI inflation, and the internal dynamics in October 2020 remaining worrying, a rate cut in the December 2020 policy meeting appears to be ruled out. Moreover, the likelihood of a Repo cut in February 2021 seems rather low at this juncture," she added.

Retail inflation in October 2020 rose to a 77-month high of 7.61 per cent. As a fallout of COVID-19, inflation from health and recreation and amusement inflation has increased and are unlikely to ease in next few months, said Devendra Kumar Pant, Chief Economist, India Ratings and Research.

"While India Rating expected inflation to decline in 3Q FY21, it appears, while food inflation may decline with onset of winter and arrival of fresh onion crop, core inflation is likely to remain elevated in FY21.

"Monetary Policy Committee is in a difficult situation with inflation breaching 6 per cent (for) three consecutive quarters, growth being low and India having a recession (two consecutive quarters of negative growth) once 2Q FY21 GDP numbers are released. India Ratings expects an extended pause on policy rates," Pant said.