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India's retail inflation experienced a significant uptick in September, reaching a 9-month high of 5.49% on an annual basis. This surge was primarily attributed to persistent increases in vegetable prices, particularly tomatoes and onions, and a lower year-ago base. This figure surpassed the 5-year low of 3.65% recorded in August and marked the first instance since July where it exceeded the Reserve Bank of India's (RBI) 4% medium-term target.
Despite exceeding the target, the inflation level remains within the RBI's tolerance range of 2-6%. The food inflation component, which constitutes about half of the overall Consumer Price Index (CPI) basket, jumped to 9.24% in September, a significant increase from 5.66% in the previous month. This rise was further reflected in rural inflation, which accelerated to 5.87% from 4.16% in August, while urban inflation rose to 5.05% from 3.14% in August.
A Reuters poll involving 48 economists had predicted consumer price inflation to reach 5.04% in September, with forecasts ranging from 3.60% to 5.40%. The inflation rate for vegetables specifically experienced a notable surge, growing to 35.99% in August compared to 10.71% in the previous month. Meanwhile, pulses & products inflation saw a slight decrease, settling at 9.81% from 13.6% in August. The rise in prices for food items, especially vegetables and other perishables, which represent a substantial portion of household spending in India, was attributed to heavy rains impacting the availability of essential crops.
Experts, like Dipanwita Mazumdar, an economist at Bank of Baroda, pointed to the persistent spike in vegetable prices, particularly tomatoes and onions, as a significant factor contributing to the higher inflation reading in September. She also noted that edible oil prices were experiencing upward momentum due to increased international prices, further adding to the pressure on headline inflation. In response to the evolving inflation situation, the Reserve Bank of India (RBI) maintained its retail inflation projection at 4.5% for fiscal 2024-25 during its October Monetary Policy Committee (MPC) meeting. However, Governor Shaktikanta Das emphasized the need for close monitoring of the price situation and ensuring that inflation remains under control.
Das employed the analogy of a horse to describe the RBI's approach to controlling inflation. He stated that the central bank had successfully 'brought the inflation horse to the stable,' referring to bringing inflation closer to the target within the tolerance band compared to the heightened levels observed two years ago. The RBI opted for a status quo on interest rates for another cycle but shifted its stance to 'neutral' from the earlier 'withdrawal of accommodation'. This change in stance reflects a greater sense of clarity on the inflation front, with expectations of moderation in the coming months.
Source: India’s retail inflation accelerates to 5.49%, exceeds RBI’s 4% target