India’s retail inflation in September likely exceeded the Reserve Bank of India’s (RBI) medium-term target of 4% for the first time since July, driven by a persistent rise in vegetable and vegetable prices. ‘a lower base than the previous year, according to a Reuters poll.
Food items, especially vegetables and other perishables, which account for a significant share of overall household expenditure in the country, have witnessed a price hike due to heavy rains which have reduced the availability of essential crops.
Last year’s high base, which helped reduce inflation in July and August, became a lower base last month, which had the opposite effect.
According to a Reuters poll of 48 economists conducted October 3-9, retail inflation measured by the consumer price index (CPI) rose from 3.65% in August to 5.04% in September by compared to the previous year. Forecasts ranged from 3.60% to 5.40%.
The data will be released on October 14 at 1200 GMT.
“September’s results will be impacted by a persistent rise in vegetable prices, particularly tomatoes and onions. …. Even edible oil prices are on the rise due to the increase in international prices All these concomitants could put upward pressure on overall inflation,” said Dipanwita Mazumdar, economist at Bank of Baroda.
“Moreover, in terms of statistical basis, the third quarter has no advantage,” she added.
A separate Reuters poll showed inflation averaging 4.6% this quarter and 4.5% this fiscal year, above the central bank’s 4% target.
Meanwhile, core inflation, which excludes volatile items such as food and energy, is expected to rise to 3.50% in September from 3.30% in August, partly due to higher tariffs telecommunications and the price of gold.
“We view continued weakness in core CPI as a sign of a growing economic slowdown, which is also reflected in rising motor vehicle rebates, and recent corporate profits (from fast-moving consumer goods ) also indicate a lack of pricing power,” said Rahul Bajoria, head of India and ASEAN economic research at Bank of America.
Benign core inflation could allow the RBI, which left interest rates unchanged on Wednesday, to start cutting them in December. Most major central banks, including the US Federal Reserve, have already started an easing cycle.
“When the RBI meets in December, it will have at least a month of good food price data… (and) the Fed may have cut rates by 75 basis points. Against this backdrop, the RBI will find room to ease policy with a very shallow rate cut cycle,” said Gaura Sengupta, chief economist at IDFC Bank.
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