India’s October CPI at 6.21% and Industrial Production Up 3.1%: 14-Month Inflation High, Strong Manufacturing Growth

India’s Consumer Price Index (CPI) for October 2024 has risen to 6.21%, up from 5.49% in September, and surpassing the 5.81% forecast. This marks a notable increase in inflation compared to the previous month.

October CPI Data (MoM)

Retail inflation rate for October stands at 6.21%.

Rural inflation increased from 5.87% to 6.68%.

Inflation rate increased from 5.49% to 6.21%.

Urban inflation rose from 5.04% to 5.62%.

Food inflation increased from 9.24% to 10.87%.

Core inflation is at 3.7%, the highest in 10 months.

Sequentially:

Oils & fats rose 5.9%

Vegetables increased by 8.1%

Fruits climbed 1.4%

Year-over-year inflation:

Vegetables surged 42%

Oils rose 9.5%, fruits by 8.4%

Cereals up 6.9%

Milk at 4.87%, meats at 3.17%

Meanwhile, industrial production showed a recovery in September, rising by 3.1%, bouncing back from a slight decline of -0.1% in August. This performance also exceeded the expected 2.5% growth.

However, the cumulative industrial production for the year, as of September, stands at 4.00%, which is slightly lower than the 4.20% seen in the previous month.

Manufacturing output in September saw significant growth, rising by 3.9%, a sharp increase compared to the 1.0% growth recorded in August.

Industrial growth rebounded to 3.1% in September after falling to a 22-month low of 0.1% in August. This marks a strong recovery following the previous month’s downturn.

The rise in industrial growth was supported by an increase in core sector activity, which grew by 2% in September. This is a significant improvement from the 1.6% contraction in August, which was the worst in 42 months.

The performance of several sectors improved, including coal, petroleum refineries, natural gas, cement, and electricity. However, sectors like crude oil, steel, and fertilizers continued to lag behind in September.

Coal production increased by 2.6% in September, compared to a sharp 8.1% contraction in August. The petroleum refinery sector saw a growth of 5.8% during the same period.

Core industries, which make up 40% of the industrial production index, are expected to perform even better in the third quarter, especially with the boost from the festive season.

Update

India’s inflation rate rose to its highest in 14 months, going beyond the central bank’s target range, which may lead to further delays in cutting interest rates. The consumer price index increased by 6.21% in October compared to the previous year, surpassing economists’ predictions of 5.9%. Inflation was at 5.49% in September. India’s 10-year bond yields also rose slightly, reaching 6.83% after an earlier increase of up to 3 basis points.

The government said on Tuesday that it is closely monitoring onion prices and will release more from its buffer stock into the market to help stabilize prices due to temporary supply shortages.

As per govt data onions are selling for Rs 67 per kg in Delhi, while the average price across India is Rs 58 per kg. The government plans to increase onion sales to address the supply issues caused by the festival season and the closure of markets in the past few days.

UBS on Inflation:

UBS reports that October’s CPI inflation has accelerated to over 6%, driven primarily by high food prices. However, they expect food prices to soften starting in November. For the full fiscal year FY25, UBS anticipates CPI inflation will average 20 basis points higher than the Reserve Bank of India’s (RBI) forecast of 4.5%.

Despite the softening of domestic growth momentum, UBS believes that a rate cut in the December policy review will be challenging. They maintain their view that there is room for a 75 basis points monetary easing, which is expected to start early next year.

Nomura on Inflation:

Nomura believes inflation has peaked, along with growth. As a result, they have revised their expectation for the first rate cut, pushing it out from December 2024 to February 2025. They continue to foresee a cumulative 100 basis points of rate cuts in this cycle.