AA Edit | RBI may have to defer rate cut

The 14-month high inflation figure in October dashed hopes of a repo rate cut by the Reserve Bank of India (RBI) during its policy meeting in December.

The key contributory factors for a steep hike in retail inflation are double-digit growth in food inflation and personal effects.

Food inflation was on the upswing because of an extraordinary increase in vegetables (42.18 per cent), followed by edible oil (9.51 per cent), fruits (8.43 per cent) and pulses (7.43 per cent).

As food takes a lion’s share in the income of families from the poor and lower-middle classes, it has an extraordinary weightage of 54.18 per cent in the calculation of retail inflation.

Though interest rate movement has no impact on food inflation, which is driven by supply issues, the RBI is expected to postpone the long-awaited rate cut to February.

Locally-produced and perishable vegetables, and import-dependent edible oil and pulses have been traditional mischief makers in the food basket. However, successive governments have failed to address these issues forever. Promotion of cold storage facilities near vegetable growers could partially solve the issue of its shortage. Similarly, an MSP for edible oil and pulses could wean away more farmers from paddy and wheat, whose overproduction is making mountains of grain get rotten at warehouses.

However, the only saving grace is core inflation, which excludes volatile food and fuel prices. It remained stable at close to 3.7 per cent in October compared to 3.8 per cent in September.