In October 2023, India’s Consumer Price Index (CPI) inflation eased to 4.87% YoY, primarily due to a steady decline in core inflation. Core inflation decreased to 4.25% YoY in October from 4.56% in the previous month. Refined measures of core inflation, which exclude transportation fuel and valuables, also continued to ease, reflecting a moderation in underlying inflationary pressures.

Fuel remains in deflation for the second consecutive month on account of the reduction in LPG prices in September 2023.

Cereals were the largest contributors to headline inflation in October, followed by spices. Cereals and spices together contribute one-third to the headline inflation.

Onion prices witnessed a sharp increase since mid-October, while cereal and pulses prices rose at a more moderate pace. Food inflation remains broad-based, with 39% of items within the food basket experiencing inflation rates exceeding 6%.

We anticipate that inflation will average around 5.5% in FY24. Volatile vegetable prices, geopolitical conflicts, and the rise in crude oil prices pose risks to the inflation outlook. The RBI MPC is expected to maintain a prolonged pause until there is visibility of inflation sustainably reaching the 4% target.

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