India’s retail inflation accelerated to a 9-month high of 5.49 per cent on an annual basis in September, driven by a persistent rise in vegetable prices and a lower year-ago base. This is higher than the 5-year low of 3.65% registered in the previous month and marks the first time since July that it has exceeded the Reserve Bank of India’s (RBI) 4% medium-term target.
A high base from last year, which helped bring down inflation in July and August, became a lower base last month, having the opposite effect. The inflation level continues to remain within the Reserve Bank of India’s tolerance range of 2-6%.
The food inflation, which accounts for around half of the overall CPI basket, jumped to 9.24 per cent in September from 5.66 per cent in the previous month, the data showed. Rural inflation quickened to 5.87 per cent as against 4.16 per cent in August, whereas urban inflation accelerated to 5.05 per cent as compared to 3.14 per cent in the previous month.
A Reuters poll of 48 economists, estimated consumer price inflation to jump to 5.04 per cent in September. Forecasts ranged from 3.60% to 5.40%.
Inflation rate for India’s staples
The inflation rate for vegetables grew 35.99 per cent in August as against 10.71 per cent in the previous month, while pulses & products inflation eased to 9.81 per cent as against 13.6 per cent in August.Food items, especially vegetables and other perishables, which make up a significant share of overall household spending in the country, saw an uptick in prices as heavy rains reduced the availability of essential crops.
“September’s reading will bear the brunt of a persistent spike in vegetable prices, especially tomatoes and onions …. Even edible oil prices are witnessing momentum due to an increase in international prices. All these concomitantly might put upside pressure on headline inflation,” Dipanwita Mazumdar, an economist at Bank of Baroda had earlier told Reuters.
Fuel Inflation:
Fuel and light inflation stood at (-) 1.39 per cent as against a contraction of 5.31 per cent in the previous month.
Other sectors:
Housing inflation quickened to 2.78 per cent in September from 2.66 per cent in August. Clothing and footwear inflation stood at 2.71 per cent in September.
Inflation horse back to the stable
The Reserve Bank during the October Monetary Policy Committee (MPC) meeting retained the retail inflation projection at 4.5 per cent for fiscal 2024-25, with Governor Shaktikanta Das stressing that the central bank will have to closely monitor the price situation and keep the “inflation horse” under tight leash lest it may bolt again.
Das used an analogy of a horse, shifting from the elephant, to describe the way the central bank is trying to contain inflation.
For the last few months, Das has been using the elephant analogy, underlining that a tusker needs to return to the forest and stay there, which was interpreted as a need to ensure that headline inflation reaches the 4 per cent target and stays there durably.
“It is with a lot of effort that the inflation horse has been brought to the stable, i.e., closer to the target within the tolerance band compared to its heightened levels two years ago,” the governor said last week.
The RBI chose for a status quo in rates for one more time but shifted the stance to ‘neutral’ from the earlier ‘withdrawal of accommodation’ as it sees more clarity on the inflation front with a moderation in the number in the next few months.
A narrow segment of food articles continues to complicate India’s disinflation path, while non-food segments remain largely steady or lower, said, Radhika Rao, DBS Bank.
“Based on the revised quarterly projections, the central bank is aware of this spurt as base effects fade and weather conditions are expected to drive an increase in perishable costs. The MPC is likely to adopt a forward-looking approach when deciding on the timing of a rate cut, also considering the GDP performance for Jul-Sept ahead of the next policy review. We expect the strong finish of the monsoon to bode well for the harvest and moderate food prices toward the end of 2024, supporting the central bank’s shift toward easing.”
