India’s Consumer Price Index (CPI)-based inflation likely fell to a 3-month low of 5.4% in September from 6.83% in August, primarily due to sharp correction in prices of tomatoes, according to an FE poll of 16 economists. The fall in the September CPI print is seen to have also been aided by the statistical effect of a high base. In September 2022, CPI inflation was 7.41%.
If retail comes in at 5.4%, CPI inflation in July-September will average 6.6%, 20 basis points (bps) higher than the Reserve Bank of India’s projection for the quarter.
The RBI on Friday had scaled up its Q2’s inflation projection by 20 bps from 6.2% projected earlier. In June, the RBI had projected Q2 retail inflation to average at 5.2%. For the full financial year FY24, the RBI has retained its projection of 5.4%, but given the possibility of inflation averaging 6.6% in July-September, CPI inflation in FY24 may average 5.5%.
At the projected 5.4%, the overall CPI index will fall 0.8% month-on-month in September, at the highest rate in 33 months. In September 2022, the overall index had risen by 0.6%.
The National Statistical Office will release the September CPI inflation data on October 12.
“We are assuming 10-11% percent of vegetable price correction, month-on-month, which will pull down the headline print in September,” said Anubhuti Sahay, head of South Asia economics research, Standard Chartered.
According to Department of Consumer Affairs data, retail prices of tomato plunged 62.0% sequentially in September. Whereas, the prices of potato inched by 0.1%, and that of onion rose by 11.8% during the month. Pulses prices too rose by 3.4% on month, and price of both rice and wheat increased by over 1%.
Besides, September also witnessed the full impact of cut in domestic cooking gas (LPG) prices. On August 29, the Centre had cut the price of LPG by Rs 200 per 14.2-kg cylinder. As a result, economists expect considerable fall in the fuel and light inflation in September.
“We expect fuel and light inflation to fall to 2.2% in September (from 4.3% in August). While a small base effect is at play, cuts in both subsidised and non-subsidised LPG prices likely contributed to the expected moderation,” said Barclays economists in a note.
Core inflation, on the other hand, is expected to stay flat in September, owing to favourable base effect. In August, core inflation was at a 41-month low of 4.8%.
“Under control core inflation is likely to provide some comfort to the RBI, but it will still be watchful of any signs of rises in input cost pressures, owing to Brent crude remaining above $90/barrel, seeping into core inflation,” the Barclays note said.
CPI inflation in October is likely to fall even further as prices of several food items, including vegetables continue to moderate sequentially.
“Prices of basic items such as milk, salt, gur are seen falling (in October) and even the vegetable price correction continued. This is the month of fresh harvest entering the market, thus more slump is likely to occur in the coming one-two months,” said Dipanwita Mazumdar, economist, Bank of Baroda.