However, the latest RBI bulletin has cited another problem: the ‘edging up’ of the core inflation alongside. In its article, ‘State of Economy’ the central bank has said that India’s October CPI inflation brought troubling signs of rising core inflation, amplifying its cautionary tone.
Beyond the sharp rise in food prices, core inflation—a key measure that excludes volatile items— has also edged higher, hinting at broader economic pressures. It increased to 3.8 per cent in October from 3.6 per cent in September.
The RBI noted that while inflation remained steady for sub-groups such as clothing and footwear, pan, tobacco and intoxicants, and transport and communication, it increased in respect of recreation and amusement, housing, household goods and services, education and personal care and effects.
The spike in processed food prices and rising costs for household services like domestic help reflect early spillovers from elevated food costs, the RBI said.
“In this environment, the hardening of input costs across goods and services and their flow into selling prices needs to be watched carefully. Inflation is already biting into urban consumption demand and corporates’ earnings and capex. If allowed to run unchecked, it can undermine the prospects of the real economy, especially industry and exports,” the RBI wrote in its bulletin. India’s retail inflation in October was recorded at 6.21 per cent, which breached RBI’s tolerance band of 2-6 per cent, on the back of continued rise in prices of onion and other food staples. Vegetable inflation jumped 42.18 per cent in October.Food inflation, which makes up around half of the overall Consumer Price Index (CPI) basket, surged to 10.87 per cent in October, up from 9.24 percent in the previous month. Rural inflation also quickened to 6.68 per cent, compared to 5.87 per cent in September, while urban inflation rose to 5.62 per cent from 5.05 per cent the previous month.
The inching core inflation may also be a factor in the December meeting of the RBI MPC, which had last month changed its stance to neutral, opening the door for potential rate cuts.
However, RBI Governor Shaktikanta Das emphasised that a shift to a neutral stance “should not be understood as a potential interest rate cut,” adding that there are “significant upside risks to inflation.”
In the latest, the government has urged Das & Co to move on from inflation and consider cutting interest rates to propel economic activity in the country. “RBI must cut interest rates. It’s a flawed theory to consider food inflation for making a choice on cutting rates. This is my personal view and not that of the Govt,” said Piyush Goyal at an event, earlier this week.
Meanwhile, Finance Minister Sitharaman, too, has suggested to have affordable interest rates. “What is important is when you look at India’s growth requirements, and you can have so many different voices coming out and saying the cost of borrowing is really very stressful, and a time when we want industries to ramp up and move (to) building capacities, bank interest rates will have to be far more affordable,” Sitharaman had said at the SBI Conclave.