India's retail inflation based on the Consumer Price Index (CPI) is likely to soften to 5.5 percent in November as food prices declined, a Morgan Stanley (NYSE:MS) report said. "We expect CPI inflation to edge down to 5.5 percent in November from 6.2 percent in October, driven by a moderation in food prices, even as core ticks up and fuel continues to decline. On a sequential basis, we expect the index to fall owing to contracting food prices and deceleration in core CPI," the report.
Core CPI includes goods and services but excludes food and fuel, which are considered to be more volatile.
CPI inflation increased to 6.21 per cent in October due to higher prices of food items such as vegetables during the month. This is the first time that inflation breached the RBI upper limit of 6 per cent in recent months.
Retail inflation has risen to 5.49 per cent recorded in September as the prices of vegetables surged by as much as 42.18 per cent in October as the late withdrawal of the monsoon this year resulted in damage to crops and reduced supply in the market.
RBI Governor Shaktikanta Das said last week, "India's growth story is still intact. Inflation is on the declining path, but we cannot overlook the significant risks in the outlook. This risk cannot be underestimated."
The RBI Governor was optimistic about the outlook for the economy, observing that "the balance between inflation and growth is well poised."
The Reserve Bank of India (RBI) on Friday reduced the cash reserve ratio (CRR) for banks by 0.5 per cent to make more funds available for lending to spur economic growth but kept the key policy repo rate unchanged at 6.5 per cent with an eye on inflation.
The CRR cut will infuse Rs 1.16 lakh crore into the banking system and bring down market interest rates.
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