October’s headline inflation cools off to 3.31% y/y, marking a one-year low while core inflation came in at 6.1% y/y. Although the cost of transportation & communication edged higher driven by higher crude oil prices, it was negated by softer food prices.

With inflation in the easing trend and below the Reserve Bank of India’s target of 4% (+/-2%.), it provides some breathing space on its coming monetary policy action. With sanguine food prices added with the stable rupee and cooling oil prices plus base effect, we believe the RBI will keep its policy rate unchanged in the coming December monetary policy committee (MPC) meeting.

• October’s headline inflation cools off more than expected. It rose 3.31% y/y from 3.7% y/y in September, marking a one-year low. Markets expectation was 3.6% y/y. However, core inflation came in at 6.1% y/y compared to 5.9% y/y in September.

• Although the cost of transportation & communication edged higher 7.72% y/y in October from 6.42% y/y in September driven by higher crude oil prices, it was negated by softer food prices. Food index fell 0.86% y/y in October from a gain of 0.51% y/y in September due to reforms in agriculture marketing which have helped distort monopoly businesses.

• Besides, housing inflation rose 6.55% y/y in October from 7.07% y/y in September while clothing & footwear rose 3.55% y/y in October versus 4.64% y/y in September partly dragged price pressure lower.

• With inflation in the easing trend and below the Reserve Bank of India’s target of 4% (+/-2%.), it provides some breathing space on its coming monetary policy action. With sanguine food prices added with the stable rupee and cooling oil prices plus base effect, we believe the RBI will keep its policy rate unchanged in the coming December monetary policy committee (MPC) meeting.

Source: AmInvest Research - 13 Nov 2018