“October’s inflation print was less a surprise than a culmination of pressures that had been building for months,” said Dipti Deshpande, Principal Economist, Crisil Ltd.
“The acceleration in food inflation reflects increasingly binding supply-side constraints. A deficient monsoon has clouded the kharif outlook, while prospects for the rabi crop have also weakened, with sowing lagging significantly, particularly for wheat and gram. Elevated global food prices further keep the outlook on food inflation under pressure through the remainder of the fiscal,” she said.
“Inflationary pressures are also extending beyond food. Although the Indian crude basket has moderated to an average of USD 96 per barrel so far in November, input-cost pressures across manufacturing remain elevated. Combined with resilient domestic demand, this should allow producers to continue passing higher costs on to consumers, suggesting that disinflation will be gradual,” Deshpande noted.
Average CPI inflation has already increased to 4.7 per cent this fiscal, above the Reserve Bank of India’s (RBI) 4 per cent target midpoint.
Crisil expects CPI inflation at an average of 5.3 per cent this fiscal with risks tilted to the upside as food inflation continues to surprise on the upside.
The ratings agency expects the Monetary Policy Committee of the RBI to retain its tightening bias and sees scope for another repo rate hike of 25 basis points at its December review meeting.
