India’s retail inflation likely surpassed the Reserve Bank of India's (RBI) medium-term target of 4% in September for the first time since July, driven by rising vegetable prices and a lower year-ago base, a Reuters poll showed.
The uptick in prices for essential food items, particularly vegetables and other perishables, contributed significantly to the inflation increase, as heavy rains impacted crop availability. With food costs representing a large portion of household expenditure, the rise in prices exerted substantial pressure on inflation.
In contrast to a high year-on-year base that helped curb inflation in July and August, the same base fell in September, amplifying inflationary pressures.
According to the October 3-9 Reuters poll of 48 economists, retail inflation, as measured by the consumer price index (CPI), is expected to have risen to 5.04% in September from 3.65% in August. Forecasts ranged between 3.60% and 5.40%. Official data is set to be released on Oct. 14 at 1200 GMT.
“September’s reading will reflect the continued surge in vegetable prices, especially tomatoes and onions,” said Dipanwita Mazumdar, an economist at Bank of Baroda.
“Even edible oil prices are rising due to increased international rates, all of which are likely to put upward pressure on headline inflation. Additionally, Q3 lacks the statistical base advantage,” Mazumdar added.
A separate Reuters poll indicated inflation is expected to average 4.6% this quarter and 4.5% for the fiscal year, both higher than the central bank’s 4% target.
Core inflation, which excludes volatile items such as food and energy, was forecast to rise to 3.50% in September from 3.30% in August, partly driven by hikes in telecom tariffs and rising gold prices.
“We interpret the persistent softness in core CPI as a sign of increasing economic slack,” said Rahul Bajoria, head of India and ASEAN economic research at Bank of America. “This is reflected in the rising discounts on motor vehicles and the recent earnings reports from fast-moving consumer goods companies, which suggest a lack of pricing power.”
With benign core inflation, the RBI, which kept interest rates unchanged on Wednesday, may have room to start cutting rates in December. Many major central banks, including the US Federal Reserve, have already initiated easing cycles.
“By December, the RBI will have at least a month of favourable food price data,” said Gaura Sengupta, chief economist at IDFC Bank.
“Additionally, the Fed could reduce rates by 75 basis points, which could provide the RBI with an opportunity to begin a shallow rate cut cycle.” he said.
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