Headline inflation moderates, but core inflation remains sticky

Inflation, as measured by the Consumer Price Index (CPI), moderated to 6.8% on-year in October, down from 7.4% in September. This was expected due to the base effect from last fiscal. There was some easing in sequential momentum in cereal inflation, but it was offset by acceleration in vegetable inflation. Core inflation continues to remain sticky, exerting pressure on headline inflation.

Retail inflation climbed down in October owing to strong base effect from last fiscal. This is expected to continue playing out, leading to further moderation in inflation on-year. However, sequential momentum in prices of vegetables and cereals will be a monitorable given the weather-related impact on supplies. Core inflation remains around 6% indicating recovering demand and continued pass-through of input prices. We thus maintain our CPI inflation forecast of 6.8% for this fiscal, compared with 5.5% previous year.

Inflation trends in October: Highlights

• CPI inflation slowed to 6.8% on-year in October from 7.4% in September — though it was higher than 4.5% a year ago
• Food and beverage inflation saw the maximum softening to 7% from 8.4% in September
• Fuel¹ inflation maintained the trend of continuous moderation to 9.9% (vs 10.4%)
• Core CPI² inflation remained sticky at 6%, same as in September

¹ Refers to CPI fuel and light
² CPI excluding food and beverages and fuel and light