GST effect: Retail prices rose just 0.25% in October, the lowest ever, Pg1.

Key Highlights:

• Consumer prices rose by only 0.25% in October compared to the previous year, marking an all-time low due to GST rate cuts and a favorable base effect.
• Rural inflation was negative for the first time, with consumer prices 0.25% lower than the previous year, while urban areas saw a 0.88% increase.
• The Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) kept the policy repo rate unchanged at 5.5% on October 1 and is scheduled to meet again on December 3-5.
• Food inflation hit a low, with the food price index showing a -5.02% inflation rate in October, driven by falling vegetable and pulse prices.

Detailed Insights:

• The decline in inflation is primarily due to softening food prices, particularly vegetables, with food inflation at its lowest in the current index series.
• Inflation has averaged 1.92% in the first seven months of the year, raising the possibility of full-year inflation being lower than the RBI's forecast of 2.6%.
• Deflation in the food category has widened, with sharp falls in prices of vegetables and pulses like potato, onion, tomato, and arhar/tur.
• Non-food category inflation remains subdued, except for personal care and effects, potentially due to the surge in gold prices, which rose by 8.7% in October.
• The rationalization of GST rates may have contributed to the low inflation, but economists believe the full impact will be visible by November.
• The RBI has consistently overestimated price pressures and lowered its inflation forecast from 4.2% in February to 2.6% in October.
• GDP data for the second quarter will be released by the end of the month, influencing the MPC's decision on further rate cuts.

Key Concepts Involved:

• Inflation: The rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling.
• Deflation: A decrease in the general price level of goods and services, occurring when the inflation rate falls below 0%.
• Monetary Policy Committee (MPC): A committee of the RBI that is responsible for setting India's monetary policy, including the policy repo rate.
• Goods and Services Tax (GST): An indirect tax used in India on the supply of goods and services.