Inflation demands long-term vision and decisive action

The latest data on inflation, which exceeds the Reserve Bank of India’s medium-term target of 2-6 per cent, clearly indicates that a deeper story lies beneath the surface about what this means for consumers and the broader economy.

Retail inflation, measured by the Consumer Price Index (CPI), surged to 6.21 per cent in October, significantly up from 5.49 per cent in September to the highest level since August 2023.

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This figure breaches the RBI's medium-term target range of 2-6 per cent, raising pressing questions about its implications and what lies ahead.

Food inflation goes north

At the heart of this inflationary spike is food. October’s food inflation reached a staggering 10.87 per cent, compared to 9.24 per cent in September and the highest in 15 months.

Essential commodities like tomatoes and onions saw sharp price increases, attributed to heavy rains disrupting supply chains in major producing states such as Karnataka and Andhra Pradesh.

Suman Chowdhury, chief economist at Acuite Ratings, emphasised: “Tomato prices have soared due to heavy rains in September and October, damaging crops in key producing states. This disruption has had a cascading effect on other food categories.”

Perils of inflation

The significance of this surge cannot be understated. Inflation impacts purchasing power, reduces consumer confidence and influences economic policy.

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The RBI, which has kept the repo rate steady at 6.5 per cent since February 2023, now faces limited options. Hopes for a rate cut in December have been dashed.

Economists like Madhavi Arora of Emkay Global suggest that the RBI will likely maintain its cautious stance. “This nasty inflation print, coupled with consistent downward pressure on the rupee, leaves little room for the RBI to cut rates,” she explained.

Consumers take huge hit

In the meantime, consumers are left grappling with rising costs. Vegetables, cereals and cooking oils — staples of the Indian diet — have become increasingly expensive.

While supply chain disruptions and adverse weather have been the immediate triggers, structural issues such as inefficient logistics and a lack of climate-resilient agricultural practices exacerbate the problem.

Economists are cautiously optimistic that inflation may cool in the coming months. Winter crops and improved supplies could bring relief to food prices. “Kharif sowing has been healthy, and fresh arrivals should lead to sharp corrections in vegetable prices,” said Dharmakirti Joshi, chief economist at Crisil, as quoted by various reports.

Many factors behind inflation

However, structural challenges remain. Rising costs in transportation and manufacturing indicate that inflationary pressures extend beyond seasonal fluctuations. Global economic uncertainties, a strengthening US dollar and climate risks further complicate the picture.

Additionally, as measured by the Index of Industrial Production (IIP), industrial production showed a modest recovery in September, growing 3.1 per cent year over year, rebounding from a contraction of 0.1 per cent in August.

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However, this growth has remained below the average for most of the past year. While the manufacturing and infrastructure sectors have contributed to the uptick, the overall pace reflects underlying economic stress.

Challenging times for RBI

The RBI’s task of balancing inflation control with economic growth has become more challenging. The October high inflation print will likely push the central bank’s policy response into 2025.

“We expect rate cuts to be deferred to the first quarter of 2025, as inflation remains above the RBI’s target level,” said Sujan Hajra, chief economist at Anand Rathi Shares and Stock Brokers, per reports.

Long-term solutions must address the structural drivers of inflation. Key measures include investing in logistics and storage facilities to reduce inefficiencies and wastage and strengthen the supply chain; policies that help farmers adapt to erratic weather patterns and mitigate crop losses; and expanding focus beyond staple crops to reduce dependency on vulnerable categories.

Long-term correctives needed

While inflation may ease in the short term as fresh supplies hit the market, the persistent structural issues suggest that price pressures are far from over. This means continued vigilance in managing expenses and adjusting to changing market dynamics for consumers.

According to various analysts, the current spike serves as a reminder that addressing inflation requires more than temporary fixes — it demands a long-term vision and decisive action to safeguard the nation's economic well-being.