How base effect, bullion price shaped CPI inflation, Pg15

Key Highlights:

• India's CPI inflation fell to a record low of 0.25% in October, remaining below the RBI's 4% target for nine consecutive months.
• A significant favorable base effect of 133 bps in October contributed to the lower headline retail inflation.
• Consumer Food Price Index saw an even larger favorable base effect of 256 bps, pulling food inflation down to -5.02%.
• Retail gold prices surged 57.83% and silver prices increased by 62.36% in October.

Detailed Insights:

• The base effect, calculated by comparing current prices to the same month last year, significantly influenced the CPI inflation.
• The GST cuts implemented on September 22 are expected to further impact inflation data as companies pass on the full benefit to consumers.
• Excluding gold and silver from the CPI calculation would have resulted in a negative inflation rate of -0.63% in October.
• The RBI anticipates average CPI inflation to rise to 4.5% in April-June 2026 from 1.7% in July-September 2025 due to an unfavorable base effect.
• Partial price reversals are already being observed on online portals after the GST rate cuts, potentially impacting offline sales as well.

CPI

Key Concepts Involved:

• CPI (Consumer Price Index): A measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care.
• Base Effect: The impact that the rise in price levels in the previous year has on the inflation rate in the current year.
• Monetary Policy Committee (MPC): A committee of the RBI that is responsible for setting India's monetary policy, including the policy repo rate.