DBS Group Research anticipates India’s headline inflation to rise in October on higher food costs and base effects, with core inflation also quickening. Non-food components may get some relief from softer precious metals and delayed fuel price changes. With Consumer Price Index likely above the Reserve Bank of India’s (RBI) target range, DBS expects a second consecutive rate hike in December and a still-wide goods trade deficit.

Higher food prices and likely RBI hike

“We expect headline inflation to rise to 6.0% yoy in October from 5.5% the month before, on higher food costs and a low base effect.”

“High frequency data pointed to a further pick-up in sequential pressures in food segments, across cereals, edible oil, perishables (vegetables) etc.”

“Non-food components should find relief from further moderation in precious metals and delay in passage of retail fuel price changes.”

“Core inflation is nonetheless set to quicken to 4.5-4.6% as services notch increases and as indirect tax effects in the base, fall out of the equation.”

“With inflation expected to test past the higher end of the RBI target range, we expect a second successive rate hike in December.”

“The decline in oil prices has also led to cooling of overnight OIS rates as concerns over aggressive rate hikes have eased. Goods trade deficit is likely to stay wide at above $30bn in Oct.”