Retail inflation hits 5-month high in September | The Financial Express

Retail inflation hits 5-month high in September

However, fuel and light inflation eased a tad to 10.39% in September from 10.78% in the previous month.

Retail inflation hits 5-month high in September
With the base effect turning adverse, retail inflation may remain under pressure until November if the easing trajectory of global commodity prices reverses, especially due to supply shocks, and the rupee continues to slide, making imports costlier, analysts reckon.

Retail inflation hit a five-month high of 7.41% in September, as price pressure in the food segment spiked to a 22-month high and core inflation inched up further.

With this, inflation based on the consumer price index (CPI) beat the upper band of the Reserve Bank of India’s (RBI’s) medium-term target of 2-6% for a ninth straight month. This means the RBI will now have to explain to the government, formally in writing, as to why it failed to keep inflation within the prescribed level. Retail inflation has also remained above 7% for a second quarter in a row.

Thanks to the latest rise in inflation, the central bank will be constrained to raise the repo rate in December as well. But the quantum of the hike will hinge on the inflation print in October. Any further rise in inflation in October will mean another rate hike of 50 basis points, analysts said.

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With the base effect turning adverse, retail inflation may remain under pressure until November if the easing trajectory of global commodity prices reverses, especially due to supply shocks, and the rupee continues to slide, making imports costlier, analysts reckon.

Official data released on Wednesday showed that food inflation rose to 8.6% in September from 7.62% in August and 6.69% in July. Core inflation rose to a four-month high of 6.07% in September, against 5.85% in the previous month, primarily due to elevated price pressure in the clothing, footwear and housing segments, according to India Ratings. This also means festival demand may be allowing producers to pass on rising input costs, albeit to a limited extent.

However, fuel and light inflation eased a tad to 10.39% in September from 10.78% in the previous month.

Within the food segment, inflation in vegetable (18.05%), spices (16.88%) and cereals and products (11.53%, and a 108-month peak) contributed substantially to the overall price pressure. With paddy areas falling short of expectations, cereal inflation may continue to pose upside risks to headline inflation in the coming months.

Icra chief economist Aditi Nayar said: “The excessive rainfall in early October may adversely impact the kharif harvest and delay rabi sowing, thereby posing a material upside risk to the food inflation outlook. However, the impact of the same on the year-on-year food inflation prints is likely to be partly mollified by the high base that lies ahead for H2FY23.”

DK Joshi, chief economist at Crisil, said: “There is pressure on both, the supply (from food inflation- cereals and vegetables) and the demand side (recovery in demand, particularly in services).”

According to Sunil Kumar Sinha, principal economist at India Ratings, core inflation, which the monetary policy targets, declined to a four-quarter low of 5.89% in Q2FY23 from 6.05% in Q1FY23.

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First published on: 13-10-2022 at 04:30 IST