India’s retail inflation, based on the Consumer Price Index, likely rose to 5.1% in September from 3.65% in August, primarily due to an unfavourable base effect, according to the median of a poll of 18 economists by FE. In September 2023, CPI inflation was at 5.02%.
The Reserve Bank of India (RBI) has projected retail inflation to average 4.1% in Q2FY25, and with the projected 5.1% print, the inflation during the September quarter will match the central bank’s forecast.
The National Statistical Office (NSO) will release the September CPI data on Monday.
“Passage of base effects and an uptick in perishable food items due to volatile weather are expected to lead headline inflation up to 5% in September,” noted Radhika Rao, senior economist, DBS Bank.
In the months of July and August, high base effects had pulled down CPI inflation prints below 4%. Both the months had recorded headline inflation at 3.6% and 3.65%, respectively. But from September, the base turned adverse.
Food prices during September largely fell, as prices of potato, tomato, rice, and milk moderated sequentially, while that of wheat and edible oils increased. Prices of oil also stayed low despite rising tensions in the Middle East. But an unfavourable base is expected to push the y-o-y food inflation print above 7% in September from 5.66% in August.
“Core CPI, meanwhile, is expected to tick up on telecom tariff and gold prices but undershoot the headline CPI pointing to modest pricing power,” said Rao. In August, core inflation stood at 3.4%. Barclays has projected core inflation to rise to 3.5% in September.
The continuous rise in international gold prices likely pushed ‘personal care and effects CPI (weighting of 3.89%) up m-o-m, said Barclays in a report. “We expect only mild m/m increases in other components of core CPI (housing, clothing, miscellaneous), reflective of limited demand pull pressures…and subdued input costs,” it said.
The MPC has baked these factors into its forecasts already as reflected in the Governors’ comments and the policy statement. “Therefore, how inflation trajectory shapes up for October/November in the milieu of geopolitical developments will shape the outlook for growth-inflation and thus the December monetary policy,” said Achala Jethmalani, economist, RBL Bank.
In his monetary policy address, RBI Governor Shaktikanta Das had said that the recent uptick in food and metal prices, as seen in the Food and Agricultural Organisation (FAO) and the World Bank price indices for September, if sustained, can add to the upside risks in inflation outlook going forward.