In this high-stakes game of economic fortunes, November saw India’s retail inflation take a risky bet, breaking free from a three-month descent and boldly placing its chips toward the upper echelon of the Reserve Bank of India’s (RBI) 2%-6% target range. It’s a gambler’s delight, with volatile food prices, the wild cards of the inflation basket, stealing the spotlight. Onions, tomatoes, and pulses, the high rollers of household staples, led the charge in this thrilling game of chance, setting the stage for an anticipated roll of the dice.
The December 5-7 poll of 41 economists, akin to a gathering of economic poker players, predicts that the consumer price index (CPI) (INCPIY=ECI) will reveal its hand with an annual rate of 5.70%, outshining the 4.87% of October. The forecasts, reminiscent of odds in a betting, span a tantalizing range of 4.50%-6.50%, with a handful of daring experts predicting a breach of the central bank’s upper target limit.
But in this game, the RBI plays the role of the house, seemingly unwilling to intervene and tamper with the unfolding drama. Governor Shaktikanta Das, adopting the stoic demeanor of a seasoned card dealer, hinted last month that inflation is as unpredictable as a shuffled deck, vulnerable to “recurring and overlapping” food price shocks.
Enter Alexandra Hermann of Oxford Economics, our economic croupier, narrating the tale of inflation ticking up in November with a flair for the dramatic – attributed, of course, to the higher stakes of food prices. Rice prices, like chips on the rise, continued their ascent, while onions nearly doubled their ante, and tomatoes, the rising stars, inflated their bets once again.
Hermann, with the finesse of a skilled gambler, expects base effects to keep inflation on its toes through December but promises a denouement of easing price pressures in 2024. However, in the world of economic gambling, twists and turns are the norm, and food and oil prices, akin to unpredictable wild cards, could throw in some surprises. But fear not, for Hermann believes the economic scriptwriters have limited the upside risks.
In this epic tale of economic uncertainty and high stakes, a separate Reuters poll, conducted by financial fortune tellers, predicts that inflation in India’s third-largest economy will average 5.4% and 4.8% for the current fiscal year and the next, respectively. The RBI, playing the role of the unyielding gambling manager, is expected to maintain its repo rate unchanged through at least July, despite the tumultuous backdrop of vegetable prices – a subplot reminiscent of the unpredictability of side bets.
Upasana Chachra of Morgan Stanley, a seasoned economist with a penchant for strategic moves, noted, “We expect the RBI to note the volatility from vegetable prices; however, it is likely to keep its FY24 inflation estimate unchanged at 5.4%.”
As we eagerly await the next roll of the economic dice, the survey tantalizingly suggests that wholesale price inflation (INWPI=ECI), a subplot reflecting changes in producer prices, is expected to rise to 0.08% year-on-year in November, following the unexpected 0.52% contraction in October—a twist that only the most skilled economic gamblers might have anticipated. The wheel of economic fortune keeps spinning, and the stakes have never been higher in India’s inflationary market.