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Retail Inflation Eases to 6.77% in October

India’s retail inflation, which is measured by the Consumer Price Index (CPI), fell to a three-month low of 6.77% in October, down from 7.41% in September, due to weaker food price rises and a strong year-on-year base.

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RBI’s Tolerance Band:

This is the 10th consecutive time that the CPI print has come above the Reserve Bank of India’s (RBI) upper margin of 6%. The RBI’s tolerance band is 2-6%. The Central Government has mandated the RBI to maintain retail inflation at 4% with a margin of 2% on either side for a five-year period ending March 2026.

Food Inflation:

The overall food inflation, which accounts for nearly half the CPI basket, came in at 7.01% in October as against 8.60% in the preceding month.

What The Economists Said:

“The dip in the CPI inflation to a sub-7% reading in October 2022 has offered relief, with the print only marginally exceeding expectations (6.7%) and recording a healthy sequential moderation from 7.4% in the previous month,” said Aditi Nayar, Chief Economist at ICRA.

“A favourable base effect and a sequential downtick in the prices of fruits and oils and fats helped to cool food and beverages inflation to 7.0% in October 2022, in spite of the impact of the unseasonal rainfall on vegetables,” Nayar stated.

What Is CPI-Based Inflation Or Retail Inflation:

The CPI tracks the change in retail prices of goods and services which households purchase for their daily consumption. CPI is used as a macroeconomic indicator of inflation, as a tool by the central bank and government for inflation targeting and for inspecting price stability, and as deflator in the national accounts.

CPI specifically identifies periods of deflation or inflation for consumers in their day-to-day living expenses. If there is inflation (when goods and services cost more) the CPI will rise over a period of time. If the CPI drops, that means there is deflation, or a steady reduction in the prices of goods and services.

Headline and Core Inflation:

    • The food and fuel inflation form one of the components of headline inflation in India.
    • Headline Inflation is the total inflation for the period, comprising a basket of commodities.
    • Core Inflation excludes volatile goods from the basket of commodities tracking Headline Inflation. These volatile commodities mainly comprise food and beverages (including vegetables) and fuel and light (crude oil).
      • Core inflation = Headline inflation – (Food and Fuel) inflation

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