Driven by soaring food costs, India’s consumer price index (CPI) surged to 6.21% in October year-on-year, exceeding the target ceiling established by the Reserve Bank of India (RBI). For over a year, the monthly inflation rate in India had remained below 6%, comfortably situated within the RBI's target band of 2% to 6%.
This consistency had fostered optimism that the RBI might embark on a monetary policy easing phase. However, the RBI now finds itself confronting a resurgence in inflation, which will likely deter a rate hike in its upcoming policy meeting scheduled for December, as shared by HSBC Global Research in a client letter.
HSBC Global Research anticipates that the RBI will maintain its current rate in December, potentially implementing its first rate cut in February 2025, when it is expected to have greater assurance that the recent surge in food prices will have stabilized. Indian consumers have been grappling with escalating food expenses lately, with the food-cost index climbing 10.87% year-on-year in October, primarily due to rising prices of vegetables and cooking oil.
Housing expenses for Indian consumers also increased by 2.81% in October, alongside a 5.45% rise in electricity utility bills, officials reported. Like many other nations, India experienced a spike in inflation rates during the pandemic and its aftermath, peaking at 7.79% year-on-year in April 2022.
Since then, the official inflation rate in India has moderated somewhat, even dipping below 4% in the summer months, but it has been trending upwards again in recent times. To tame inflation, the RBI had elevated its key policy rate from 4% in April 2022 to 6.5% in May 2024, where it has remained to date.
Concluding its latest policy session in early October, the RBI indicated that 'the domestic growth outlook remains resilient, supported by domestic drivers of private consumption and investment. This creates room for monetary policy to concentrate on achieving a sustainable alignment of inflation with the target.'.