Barclay Predicts India's Inflation To Rise At 6.15% In November On Soaring Food Prices

India's consumer price index (CPI)-based inflation, commonly known as retail inflation, is anticipated to have breached the Reserve Bank of India's (RBI) tolerance limit of 6% in November. According to Barclays' estimates, the inflation rate might have surged to 6.15% year-on-year (YoY), marking a reversal from the recent moderating trend.

Barclays, the global financial firm, outlined its observations in a report, stating, "We estimate that CPI inflation rose in November to 6.15 per cent YoY, a sharp reversal from the moderating trajectory over the past couple of months (October: 4.9 per cent, September: 5 per cent)." The report further indicated that the rise could be attributed primarily to higher food inflation, with a notable increase in vegetable prices, including onions and tomatoes, and persistence in a few non-perishable items, particularly pulses.

Food inflation is expected to accelerate to 9.2% for November, up from 6.2% in October, driven by a double-digit sequential rise in vegetable prices. On the flip side, fuel and light inflation may remain in deflation, at -1.3% YoY for November against -0.4% in October, as per Barclays' projections. The report also suggested that core inflation is likely to remain broadly stable at 4.3% YoY for November.

Barclays highlighted that despite the continued strength in domestic demand, core inflation has remained under control. The reasons for this control could be attributed to either higher aggregate supply or the impact of supply shocks on second-order effects on inflation. For instance, recurring food price shocks may lead to higher wages or transportation costs, or even influence inflation expectations.

Barclays pointed out that the input and output price Purchasing Managers' Index (PMIs) for both the manufacturing and services sectors in November showed easing input cost pressures. On the contrary, there was a slower pace of rise in selling prices, providing some relief amidst inflation concerns.

The financial firm anticipates the Reserve Bank of India to remain on a cautious hold during its Monetary Policy Committee (MPC) meeting this week. Despite the stable core inflation, the RBI is expected to be wary of the impact of elevated food inflation on inflation expectations. The central bank, with its mandate to maintain price stability and keep inflation within the target range, may adopt a cautious approach in response to the recent inflationary pressures.