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Retail inflation rate surged to a nine-month high of 5.49 per cent in September from 3.65 per cent in August, mainly due to a rise in food prices especially of fruits and vegetables, data released by the National Statistical Office (NSO) showed. Food inflation, based on Combined Food Price Index (CFPI), increased to 9.24 per cent in September from 5.66 per cent in August and 6.62 per cent in the year-ago period.
The increase in the inflation rate comes just a week after the Reserve Bank of India (RBI) decided to keep the key policy rate, repo rate, steady at 6.5 per cent for the 10th consecutive time citing inflation as the main concern. With the September print, the headline inflation rate has breached the 4 per cent mark in the 4+/- 2 per cent band of RBI’s medium-term inflation target after a gap of two months, which experts say is likely to keep the RBI in a wait-and-watch mode and opt only for a shallow rate cut in FY25.
Food and beverages, which accounts for 45.86 per cent of the total weight of Consumer Price Index (Combined), registered an inflation rate of 8.36 per cent in September, up from 5.30 per cent in August. Inflation rate for perishables such as vegetables increased to a 14-month high of 35.99 per cent in September from 10.71 per cent in August, while that for fruits rose to 7.65 per cent and from 6.45 per cent. Excluding vegetables, food and beverages inflation slumped to a 59-month low of 3.9 per cent in September from 4.3 per cent in August, Aditi Nayar, Chief Economist, ICRA said.
Inflation rates for cereals (6.8 per cent), pulses (9.8 per cent), and eggs (6.31 per cent) continued to remain high in September. Edible oils exited deflation territory for the first time in 19 months, with oils and fats registering an inflation rate of 2.47 per cent in September as against (-)0.86 per cent in August. “Risks to food inflation have not fully abated completely and need monitoring.
Factors such as uneven monsoon, pre-harvest rainfall, and an increase in global edible oil prices add to the risks to food inflation…apart from food price pressures, additional inflation risks arise from the external sector. The potential for a broadening conflict in the Middle East could disrupt supply chains and impact global energy prices, which would have ripple effects on the domestic economy. Furthermore, the announcement of economic stimulus in China has led to an increase in global commodity prices, particularly industrial metals over the past couple of weeks,” Rajani Sinha, Chief Economist, CareEdge Ratings said.
Services inflation, as captured by the miscellaneous category also showed an increase to 4.05 per cent in September from 3.89 per cent in August, with personal care and effects segment registering inflation rate of 9 per cent in September as against 7.94 per cent in the previous month.
Core inflation — non-food, non-fuel segment — inched up to 3.5 per cent in September from 3.4 per cent in the previous month. “The core inflation is gradually inching up, it increased to an eight-month high of 3.5 per cent in September 2024 from 3.12 per cent in May 2024. Five months of gradual increase in core inflation could be a precursor to demand revival,” Devendra Kumar Pant, Chief Economist, India Ratings & Research said.
A combination of adverse base effect and higher prices of fruits due to festivals in October and fats due to higher import duties is expected to keep retail inflation higher in October at around 5.3-5.5 per cent, he said.
This is likely to keep the RBI on the side of caution. Last week, RBI Governor Shaktikanta Das had said that with a lot of effort, the inflation horse has been brought to the stable, that is, closer to the target within the tolerance band compared to its heightened levels two years ago. “We have to be very careful about opening the gate as the horse may simply bolt again. We must keep the horse under a tight leash, so that we do not lose control. Going forward, we need to closely monitor the evolving conditions for further confirmation of the disinflationary impulses,” he had said.
The higher than expected September inflation further strengthens the case that RBI will need to remain on the cautious side, Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank said. “Even the next reading appears to be settling higher than 5 per cent. However, the winter crop arrivals should start easing some price pressures in the weeks ahead. Overall, the upside surprise to inflation does prompt us to delay our rate cut call into 2025,” she said.
Regionwise spilt for inflation data showed that rural inflation rose to 5.87 per cent in September from 4.16 per cent in August, while urban inflation increased to 5.05 per cent from 3.14 per cent. Statewise inflation data showed that 8 of the 22 major states/UTs registered inflation over the headline rate of 5.49 per cent, with Bihar having the highest inflation rate of 7.50 per cent and Delhi having the lowest inflation rate of 3.67 per cent.
