Vegetables at the K R Market in Bengaluru.
Credit: DH Photo by B K Janardhan
New Delhi: After remaining within the Reserve Bank of India's median target of 4 per cent during July and August, retail inflation soared to 5.49 per cent in September, the highest level in nine months, primarily driven by a sharp jump in prices of food items, official data showed on Monday.
The Consumer Price Index-based (CPI) retail inflation stood at 3.65 per cent in August and 3.60 per cent in July. In September 2023, CPI, which the RBI monitors for its policy action, stood at 5.02 per cent.
Retail food inflation surged from 5.66 per cent in August to 9.24 per cent September. Prices of vegetables in September was 36 per cent higher when compared with the same month last year. Fruits became costlier by 7.65 per cent while pulses soared by 9.81 per cent and cereals became costlier by 6.84 per cent during the month. Food inflation accounts for around half of the overall CPI basket.
"It is likely that the increase in inflation rate for the month of September is due to high base effect and weather conditions," the National Statistical Office said in a statement.
People in rural India have been impacted more due to the price rise. Rural inflation soared to 5.87 per cent in September while urban retail inflation stood at 5.05 per cent.
"The substantial rebound in the CPI inflation print for September has appreciably dampened the possibility of the stance change in the October policy being followed up by a rate cut in the December 2024 meeting," said Aditi Nayar, Chief Economist at ICRA.
Last week, the RBI changed its policy stance to "neutral" from "withdrawal of accommodation" raising hopes for rate cuts. However, the central bank has kept the key policy interest rates unchanged since February 2023.
"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 at Kotak Mahindra Bank.
"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," Bhardwaj added.
High food prices also led to the jump in wholesale inflation. The wholesale price index (WPI)-based inflation increased to 1.84 per cent in September from 1.31 per cent recorded in the previous month. Wholesale food prices inflation surged from 3.11 per cent in August to 11.53 per cent in September, the highest level in 25 months.
Meanwhile, core retail inflation jumped to an eight-month high of 3.5 per cent in September. The core inflation has been inching up since May. "Five months of gradual increase in core inflation could be a precursor to demand revival," said Devendra Kumar Pant, Chief Economist at India Ratings and Research.
"The future monetary policy action will be more data dependent. We still believe there is a low probability of monetary easing in the rest of FY25, even if there is a rate cut, it will be symbolic and shallow," Pant added.
Highlights - Retail inflation July 3.60 per cent Aug 3.65 per cent Sept 5.49 per cent