September CPI Data: India's Retail Inflation Rises To A Nine-Month High Of 5.49%

India's retail inflation rose to above the central bank's target in September, led by the base effect and rising vegetable price momentum.

The Consumer Price Index-based inflation rose to 5.49% in September, compared to 3.65% last month, according to data by the Ministry of Statistics and Programme Implementation on Monday.

A Bloomberg poll of economists had pegged the inflation at 5.1% for September.

On a sequential basis, inflation rose by 0.62% in September.

Food and beverage prices rose to a four month high of 8.36% in September, compared to a 5.3% rise in August. The rise was led by vegetables, with prices soaring 35.99% compared to 10.7% in August year-on-year. On a sequential basis, vegetable prices rose by 3.5% from a month ago.

Core inflation-that excludes volatile food and fuel, rose to an eight-month high of 3.65% in September compared to 3.6% in August, according to Bloomberg.

ICRA expects the food and beverages inflation to print above the 8.0%-mark again in October 2024. Some vegetables have witnessed a sharp increase in their retail prices in early October 2024, including onion and tomatoes, which have touched 11-month and 14-month highs, respectively, said Aditi Nayar, chief economist at ICRA. Additionally, the prices of edible oils have also witnessed a sharp sequential increase in October 2024, following the sharp increase in customs duty by the government in mid-September 2024, she added.

• Cereal prices rose by 6.84% after rising by 7.31% in August.

• Inflation for meat and fish was 2.66% compared to a rise of 4.30% in the previous month.

• Inflation in eggs rose 6.31% after rising by 7.14% last month.

• inflation rate for milk and milk products was 3.03%, compared to 3% in the previous month.

• Inflation in pulses rose 9.81% after rising by 13.6% last month.

• Clothing and footwear inflation rose to 2.71%, same as in August.

The higher than expected September inflation further strengthens the case that RBI will need to remain on the cautious side, said Upasna Bhardwaj, chief economist, Kotak Mahindra Bank. Even the next reading appears to be settling higher than 5%, she said, adding that the winter crop arrivals should start easing some price pressures in the weeks ahead, according to Bhardwaj. "Overall, the upside surprise to inflation does prompt us to delay our rate cut call into 2025."

For a rate cut to be forthcoming in the December 2024 policy review, either the CPI inflation will need to flatten considerably below 5% in the next print or the GDP growth for the second quarter of the ongoing fiscal will need to significantly undershoot the MPC’s expectations, Nayar said.