Consumers will be relieved to learn that retail inflation in October fell below 5% as vegetable costs fell, but concerns about growing onion prices and high cereal prices persist. 

"We estimate that CPI inflation slowed further in October, to 4.6% year on year, as food inflation continued to ease, but this respite is likely to be fleeting, as onion prices rose." Non-perishable food price pressures continue," Rahul Bajoria, MD & Head of EM Asia (ex-China) Economics at Barclays, stated in a recent study, adding that core inflation was generally stable, supported by declining momentum and base effects.

According to V.K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services, the CPI decrease is likely to continue, bringing the October CPI print to 4.9%. "A drop in vegetable and edible oil prices may facilitate a drop in CPI inflation." "The drop in Brent crude from a high of $96 in September to around $80 now is a big relief," he said.

Retail inflation, as assessed by the consumer price index, fell to 5.02% in September from 6.83% in August, owing to a strong drop in vegetable costs and a reduction in gasoline prices. On November 13, the official CPI inflation figures for October will be announced.

However, onion prices have risen dramatically since then, and are now ranging between Rs 60 and Rs 80 per kilogramme in retail stores.

According to Barclays, a near-term pressure point on the food inflation front appears to be the ongoing rise in onion prices, which have risen 13% on average since July due to restricted supply from decreased kharif production. "But since the price rise is not as sharp as seen in tomato prices earlier (200% + month on month rise in CPI in July), and other vegetable prices are contained, the impact on headline CPI may not be very strong compared to what was seen in July-August," the report stated.  Food inflation is expected to be 5.3% in October, down from 6.3% in September.  Meanwhile, continuously rising inflation in non-perishable food goods such as grains is a source of concern. In September, CPI inflation in cereals and goods was 10.95%, while wholesale inflation in cereals remained stable at 7.28%.  

HSBC economists Pranjul Bhandari and Aayushi Chaudhary raised the problem in a new research, saying they are "particularly watchful" of cereal prices, which account for around 20% of the food basket. "In fact, we find that cereal inflation shocks are more noticeable, and can even spill over into core, peaking in about eight months, whereas vegetable inflation shocks tend to fade quickly," they said, adding that they are also keeping a close eye on pulse inflation, which is currently running at an average of 16% year on year.

They predict that food inflation will remain largely manageable, and that both headline and food CPI inflation will be lower in the second half of the fiscal year than in the first. This is because supplies of several major food staples are at safe levels, the worldwide price of rice and wheat has lately declined, and the government's supply-side food management measures have aided.