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Retail inflation in India picked up in October, led largely by higher vegetable and fuel prices, lowering hopes of a rate cut ahead of Reserve Bank of India’s monetary policy review next month.


Consumer prices in October rose 3.58% over the same month last year, according to data from the Central Statistics Office. CPI Inflation in September and August stood at 3.28%. Economists had expected inflation slightly lower at 3.43%, while market expectations was at 3.46%. It is the highest inflation rate in seven months, mainly driven by rising cost of food and fuel.


Prices went up faster for food and beverages (2.26% from 1.76% in September). The food index alone rose 1.9%, above 1.25% in the previous month. Inflation accelerated for vegetables (7.47% from 3.92%) while slowed slightly for fruits (5.05% from 5.14%). Prices of pulses fell more (-23.13% from -22.51%).


Fuel and light rose to 6.36% from 5.56%. Brent Crude has surged more than 35% since last year to nearly 64($/bbl), which is a cause of concern. Brent jumping to 65($/bbl) could add 30 basis points to the annual inflation and growth could weaken by 15 basis points as per RBI Estimates.


Meanwhile, prices went up faster for housing (6.68% from 6.1%); and clothing and footwear (4.76% from 4.63%).
The corresponding provisional inflation rates for rural and urban areas are 3.36% and 3.81% (3.15% and 3.44% respectively in September).


The elevated prices of vegetables are expected to normalise over the next few months as fresh supplies hit the market.


This is the final inflation print that the RBI will have before its monetary policy review in December.


The Central Bank will not be comfortable with the rising prices in the economy and the markets have started to price in the factors which is reflected in the yields of the G-Sec. The yield of the benchmark 10 year paper touched 7 after the inflation data announcement.


RBI, in its previous review, highlighted upside risks to inflation with Governor Urjit Patel calling for a “cautious approach”.


Next Date of Release : 12th December 2017 (Tuesday) for November, 2017.