Retail inflation accelerated to 6.09 per cent in October, and industry bodies warned on Thursday that the rise could squeeze household budgets, cool spending on homes and increase the chance of further monetary tightening by the Reserve Bank of India (RBI).
Knight Frank India and the PHD Chamber of Commerce and Industry (PHDCCI) both raised concerns about the outlook for the property sector and the wider economy.
Food prices drive the increase
Vivek Rathi, National Director, Research at Knight Frank India, said the jump in inflation was largely expected. Unpredictable weather through the year pushed up food prices, and the effect spread to other areas. Restaurants and hospitality saw price increases of more than 10 per cent, he said.
Impact on housing
Rathi cautioned that sustained price rises could reduce the buying power of households and force them to cut back on non-essential spending. He said the pressure would be most visible in the affordable and lower-income housing segments.
According to him, higher living costs combined with the possibility of higher borrowing rates could make homes less affordable, weaken buyer confidence and bring some short-term tightness to the residential real estate market.
He also said that persistent price pressures could make the RBI’s policy decisions more difficult. He pointed to a possible repo rate hike at the next Monetary Policy Committee (MPC) meeting.
Forecast and food prices
The PHDCCI said its own forecasting model, known as CPI ForeARIMA, had projected October retail inflation at 6.3 per cent. That was broadly in line with the official figure of 6.09 per cent.
Within the food basket, onion prices rose 116.22 per cent in October, up from 108.13 per cent in September. Garlic inflation climbed to 60.74 per cent, while ginger and lemon recorded inflation of 48.32 per cent and 47.30 per cent, respectively.
PHDCCI President Anil Gupta said the rise in both overall retail inflation and food prices showed why food price trends need close monitoring, given how much weight food carries in household spending.
Uneven pressure across categories
The chamber also noted that price pressures varied widely across spending categories. Restaurants and accommodation recorded inflation of 10.06 per cent, while personal care and miscellaneous goods and services rose 10.14 per cent.