THE SOFTENING, Pg10.

Key Highlights:

• Retail inflation eased to 1.5% in September, the lowest since June 2017.
• This is the second time in the current fiscal year that inflation has fallen below the RBI's comfort zone of 2%-6%.
• Deflation in food prices drove the softening of the headline inflation rate.
• Core inflation rose from 4.2% in August to 4.6% in September, driven by gold prices and housing inflation.
• Initial estimates suggest October inflation is likely to grow by just 0.2% over October last year.

Detailed Insights:

• The softening of headline inflation was primarily due to a decrease in food prices, with vegetable prices down by 21% and pulses by 15%.
• Despite rising oil prices by 18%, the consumer food price index still fell by over 2%, contributing to lower rural inflation compared to urban inflation.
• The rise in core inflation, excluding food and fuel, is attributed to spikes in gold prices and housing inflation, remaining above 4% for eight consecutive months.
• Even excluding gold prices, core inflation increased from 3.2% to 3.7%, with the super-core inflation rate accelerating from 3.3% to 3.9%.
• The expected undershooting of the RBI's inflation projections, coupled with GST cuts, suggests a potential interest rate cut in the RBI's December meeting.

Key Concepts Involved:

• Headline Inflation: The measure of the total inflation within an economy, including commodities such as food and energy prices.
• Core Inflation: A measure of inflation that excludes volatile commodities like food and energy prices to measure underlying long-term inflation.
• Deflation: A decrease in the general price level of goods and services, effectively a negative inflation rate.
• RBI (Reserve Bank of India): India's central bank, responsible for controlling the monetary policy and regulating the banking system.