Retail inflation inched up to 7.41% in September from 7% in August, official data showed on Wednesday. Also, industrial output unexpectedly shrank 0.8% in August from a year ago, against a modest rise of 2.2% in July.

The first contraction in industrial production in one-and-a-half years in August, albeit on an unfavourable base, and a further rise in inflation to a five-month peak in September just complicated the tasks of both monetary and fiscal authorities.

The Reserve Bank of India (RBI) will now be forced to raise the benchmark lending rate, yet again, in December, while striving to ensure a “soft-landing” for the economy.

The government, meanwhile, will have to scour for ways to stimulate growth without stoking further price pressure. The choice of a strict trade-off between growth and inflation doesn’t really exist at this juncture.

Also Read: Retail inflation hits 5-month high in September

This means the Centre’s reliance on the Budgetary capex, as a credible growth lever, will rise substantially in the next fiscal as well. States may get to spend a part of this capex without any stringent conditions. Finance minister Nirmala Sitharaman has already said growth concerns would be the next Budget’s top priority.

While base effect will remain inconducive for the computation of retail inflation in October, it may turn out to be favourable for the index of industrial production (IIP).

The IIP, therefore, will stage a recovery in September, while inflation may remain sticky.

The incremental price pressure has mostly originated from elevated food inflation, which climbed by almost two percentage points over the past two months to 8.6% in September. It may force the government to consider more measures –including curbs on hoarding and on exports of spices and certain other non-basmati varieties beyond the broken rice – to ease domestic supplies.

Key monitorables for authorities would be the decision of Opec+ to cut oil output from November, the pace of commodity price moderation in the wake of the interest rate hikes across the globe, the rupee depreciation and the domestic demand scenario during the key festival season.