Softer core to the rescue

Inflation based on the consumer price index (CPI) dropped a mild 15 basis points (bps) to 4.87% in October from 5.02% in September 2023, led by a broad-based decline in core and fuel inflation. Food inflation remained steady despite mixed underlying trend.

The decline in core inflation (to 4.3% from 4.5% in September) was a result of lower input-cost pressure on producers and, hence, on retail prices. Food inflation was steady - as vegetable prices softened, while pulses prices hardened - near 20% and cereal price inflation remained at ~11%. Spices hit 23%. Meanwhile, fuel inflation declined mildly, as it benefitted from a drop in retail LPG prices.

For the December quarter, we expect food inflation to soften, because of the government intervention and as the kharif harvest enters the market. Oil prices remain an unknown and could potentially play a spoilsport, if the Middle East conflict escalates. An adverse index base (inflation had seen a drop in the year-ago period) will somewhat restrict the downside in inflation for two months.