According to data released by the Ministry of Statistics and Programme Implementation, the Consumer Price Index (CPI) fell to a three-month low of 6.77 per cent in October from 7.41 per cent in the previous month.
The fall in inflation was driven by a favourable base effect that cancelled out a 0.8 per cent month-on-month in the general index of the CPI.
The Reserve Bank of India had expected the inflation to fall as Governor Shaktikanta Das on Sunday at the Hindustan Times Leadership Summit said that the CPI will fall below 7 per cent.
Despite the sizable fall in inflation in October, the inflation rate remains above 6 per cent, which is above RBI's tolerance band. This is for the 10th consecutive month CPI continued to remain on the upper margin of RBI's tolerance band.
RBI hikes repo rate in September
CPI data is majorly factored in by the RBI while they prepare the bi-monthly monetary policy. As the RBI failed to contain the inflation below 6 per cent, the Monetary Policy Committee (MPC) of the central bank had to hold a special off-cycle meeting in order to draft a report that was to be sent to the government for missing the inflation target. And in accordance with this meeting the MPC in the last week of September hiked the repo rate to 5.90 per cent up by 50 basis points (bps).
The MPC in this financial year has raised the key interest rate by a total of 190 bps. This was in order to tame the rigid inflation, but despite this move retail inflation has not come within RBI's tolerance band.
How is the CPI data collected?
The price data is collected from about 1,114 urban markets and 1,181 villages from all states and union territories through personal visits by the Field Operations Division of NSO on a weekly basis. In the month of October prices were collected from 99.8 per cent villages and 98.2 per cent urban markets.
Wholesale Price Index
Earlier in the day, the wholesale price index-based inflation declined to 8.39 per cent which was a 19-month low. The WPI inflation came down to a single digit after a gap of one and a half years. This probably offered some relief to the RBI as they have been struggling to rein in price rise.
