CPI Preview: Retail Inflation Set To Rise In November

India's retail inflation is expected to rise in November, primarily driven by elevated prices of vegetables like onions, and pulses.

A panel of economists polled by Bloomberg estimate Consumer Price Index inflation at 5.78%, compared with 4.87% in October. Inflation has been within the the central bank's tolerance band of 4+/-2% for two straight months in September and October.

"We expect CPI inflation to come in at about 6% in November 2023, mainly driven by higher food inflation amid elevated prices of onions and tomatoes," said Teresa John, economist at Nirmal Bang Institutional Equities. Meanwhile, core CPI inflation, which excludes the impact of food and fuel, is expected to remain steady at 4.2% in November, even after factoring in higher gold prices, according to John's estimates.

Food inflation is set to accelerate to 9.2% for November, compared with 6.2% in October, according to a forecast by Rahul Bajoria, chief economist at Barclays. Food prices likely rose by 2% month-on-month, pushed higher by a double-digit sequential rise in vegetable prices, he said.

Retail prices of onions rose nearly 59% month-on-month in November, which likely contributed to the sharp rise in food inflation, he said. Uneven rainfall damaged some 2023 rabi crops and the late arrival of monsoon delayed the harvesting cycle of kharif crops; together, this is causing tighter supplies, said Bajoria.

In December, prices edged down slightly but the pressure on CPI is also likely to persist, particularly as the rabi 2024 onion harvest is still some time away in March, he said.

The central government has imposed further export restrictions on onions and continues to release buffer stocks. In October, the government notified minimum export price of $800 per metric tonnes on onions till Dec. 31. The measure to outbound shipments was taken to maintain sufficient availability of onions to domestic consumers at affordable prices, the government said. India has also announced procurement of onions for supplying it to consumers at discounted prices of Rs 25 per kg.

These steps do not seem to have had a significant disinflationary impact on average national prices so far, according to Bajoria.

A more persistent concern is the momentum in prices of pulses, particularly tur dal, said Bajoria. Lower kharif output based on first advance estimates is driving prices higher.

Pulses imports are at the highest in about six years, and have been on an upward trend since July 2023 even after import duties were abolished earlier this year. This is unlikely to bridge India's sizeable demand-supply gap, Bajoria said, expecting pulses inflation to remain in double-digits in the near term.  

On the positive side, global commodity prices have softened, along with a considerable decline in crude oil prices. While fuel and light is expected to remain in deflation, core inflation is likely to remain stable.

The RBI projections in the Monetary Policy Committee's last resolution pegs CPI inflation at 5.6% in the third quarter ending December and at 5.2% in Q4.