CPI Inflation for October 2014 is at a record low of 5.52%, the lowest we have ever seen in the new CPI (which has only been collected since Jan 2011. Last year the same month showed inflation at over 10%, peaking in November 2013 at 11.16%.

You can see the light blue line (last year same time) sloping strongly up, while the dark blue line (current inflation index) is flattening out. Note however that the upslope will end in November (when inflation peaked last year). That means November inflation will be okay, but will December follow through?

Every component looks good. Food inflation has fallen to 5.8%, which is on the back of a very high index last year. Fuel inflation too has fallen (but that might not last long if the government will increase taxes on fuel). Housing inflation too has fallen to 8%, and the only thing that’s marginally increased is “Transport” which is anyway at 2.7%.

Both Urban and Rural inflation are down to all time lows:

The Scary Part: No-Food, No-Fuel inflation higher than Food/Fuel Inflation

The “Core” CPI seems to have bottomed out, though. Core CPI Inflation (minus food, minus fuel) is now flat. This isn’t a great sign, as it could be a start of an increase in inflation in the “secondary” items going forward, and it’s quite possible that food and fuel prices go up in the near future; the two mean that inflation will be headed back upwards.

The No-Food-No-Fuel is essentially the index minus the impact of food and fuel (but retaining the same relative weights of the other items). This is, for the first time in this Index, gone above everything else!

And this is dangerous – inflation in food and fuel is important because those prices are volatile and hurt or benefit us every day. But the no-food, no-fuel parts (clothes, housing, entertainment etc) hurt us more because when they go up, they stay up. These prices tend to go up only after the food/fuel combo remain high enough to last. Will the RBI note this carefully and decide, what the heck, let’s wait another couple months?

Coming up in Capital Mind Premium: The Really Really Scary Bit about “Core” CPI Inflation, and why RBI might decide that the devilish grin of inflation hasn’t entirely been wiped off our economic face.

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