India’s retail inflation remained above 7 per cent in October for a second straight month

India’s retail inflation remained above 7 per cent in October for a second straight month as vegetable prices stayed at elevated levels, worrying policymakers, who are struggling to pull Asia’s third largest economy from a deep slump. October’s annual retail inflation of 7.61 per cent was higher than the forecast of 7.30 per cent in a Reuters’ poll of economists. It stood at 7.27 per cent in September, government data showed on Thursday. Retail inflation has remained above 4 per cent, the middle-point of the Reserve Bank of India’s (RBI) target of 2 -6 per cent, for more than a year, giving it little room to cut rates.

India’s economy is likely to enter a technical recession for the first time in its history post independence in 1947, as the central bank forecast a contraction of 8.6 per cent in the July-September quarter. The country reported a 23.9 per cent contraction in the April-June quarter. Two consecutive quarters of contraction are described as a recession.

The main factor leading to higher inflation was elevated food inflation, which stood at 11.07 per cent in October compared with 10.68 per cent in the previous month. “High food inflation despite easing restrictions and improving mobility numbers indicates the problem is more complex and likely to persist in the near future,” said Anagha Deodhar, Economist at ICICI Securities.

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Disruption from the coronavirus pandemic and excessive rainfall in states such as Maharashtra, Karnataka and Andhra Pradesh have damaged and delayed the harvesting of onions – a key ingredient in Indian kitchens – alongside other vegetables.

October’s core inflation was in the range of 5.5 per cent to 5.8 per cent, according to four analysts, compared with 5.7 per cent in September. Meanwhile, with coronavirus restrictions largely eased, September industrial output grew for the first time in six months at 0.2 per cent. For the April-September period it contracted 21.1 per cent.

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