Prices Unlikely To Soften Rapidly As Upside Risks Persist: Experts

A rapid decline in prices is unlikely as vegetable and cereal rates can be a bit more persistent, despite inflation softening to 6.8 per cent in October, according to experts.

Retail inflation, as measured by the Consumer Price Index (CPI), eased to a three-month low of 6.77 per cent in October compared to 7.41 per cent in the previous month, according to the data released by the government on Monday.

Since January of this year, the CPI (Consumer Price Index)-based retail inflation has remained above the 6 per cent target-- beyond the Reserve Bank's comfort level.

"Core inflation remained at around 6.3 per cent, with momentum remaining towards the upside. We expect CPI inflation to glide down gradually to around 6 per cent by February 2023 and closer to 5 per cent in March 2023," said Suvodeep Rakshit, Senior Economist at Kotak Institutional Equities.

Noting that most of the month-on-month increase was due to food, particularly vegetables and cereals, he said this could be a bit more of a persistent source of inflation which will lead to a slow moderation.

Inflation in the food basket was 7.01 per cent in October as against 8.6 per cent in September.

"A rapid cooling off is unlikely given the base and current momentum. With duty and tax cuts on petroleum products and the ban on some food exports, drivers of inflation seem to have shifted from global to domestic factors," Anand Rathi said in a research note.

Stressing that geo-political and weather-related upside risks persist, it said the base for food products is not favorable, especially vegetables and cereals. "A sharp softening until March next year is not expected."

Retail inflation, on the other hand, appears to have peaked, according to the report.

Aditi Nayar, Chief Economist, ICRA, also said a high base is likely to limit a hardening in food inflation in the second half of this financial year, even though prices of perishables may remain firm in the immediate term.

"The near-term inflation outlook is clouded by a few risks, such as the recent sequential rise in prices of global commodities, supply disruptions for perishables owing to excess rains, and a robust demand for services. Nevertheless, a high base is expected to aid in further softening the CPI inflation to 6.0 per cent in November," she said.