India’s Retail Inflation Accelerates in September

By Nikunj Ohri and Sarita Chaganti Singh
NEW DELHI (Reuters) – India’s retail inflation in September accelerated to its highest in nine months, primarily due to rising food prices, as per government data released on Monday.

Annual retail inflation was recorded at 5.49% in September, an increase from 3.65% in August and surpassing economists' expectation of 5.04%. This figure is the highest since December 2023 when inflation stood at 5.69%.

The Reserve Bank of India anticipates inflation to ease after several months of elevated readings, forecasting an average of 4.5% for the fiscal year 2024-25. The central bank recently shifted its monetary policy stance to neutral, hinting at possible rate cuts.

The inflation target for the RBI is 4%.

Food inflation, which makes up nearly half of the consumption basket, surged to 9.24%, up from 5.66% in August. Notably, vegetable prices skyrocketed by 36% year-on-year in September compared to a 10.71% rise in August.

Inflation for cereals was 6.84% in September, down from 7.31% the previous month, while for pulses, it dropped from 13.6% in August to 9.89%.

The sharp rise in September inflation is attributed to the favorability of previous base effects declining and adverse weather disrupting supply chains, leading to higher food prices, noted Garima Kapoor, an economist at Elara Securities.

RBI Governor Shaktikanta Das cautioned last week about persistent risks to inflation stemming from bad weather, geopolitical tensions, and rising commodity prices. Concerns around an escalating Middle Eastern conflict and potential disruption to oil exports from major producers have sent global oil prices to about $80 per barrel.

"Inflation uncertainties continue to loom in the near-term, especially with the recent uptick in commodity prices like vegetable oils," commented Sakshi Gupta, economist at HDFC Bank.

Unseasonal rain remains a risk factor, as India experienced above-average rainfall in September and is predicted to receive unusually high precipitation in October, which could harm crops like rice, soybeans, and pulses that are ready for harvest.

Core inflation, which excludes volatile food and energy prices, stood at 3.5%, compared to 3.3%-3.4% in August, according to two economists.

Gupta indicated that the likelihood of a December rate cut remains low, contingent on the evolution of commodity price pressures, and forecasted that inflation could fall below 5% by the end of 2024.