Rises to 3.99% but still remained within the RBI’s comfort zone

Retail inflation climbed to a 14-month high of 3.99 per cent in September due to costlier vegetables and pulses but still remained within the RBI’s comfort zone, government data showed on Monday.

The Consumer Price Index-based inflation stood at 3.28 per cent in August and 3.70 per cent in the September 2018. The previous high was 4.17 per cent in July 2018.

However, the wholesale inflation in September slipped to an over three-year low of 0.33 per cent.

The CPI data released by the National Statistical Office (NSO) showed that the rate of price rise in the food basket in September 2019 was 5.11 per cent as against 2.99 per cent in the preceding month.

The inflation print for vegetables shot up to 15.40 per cent during the month from 6.9 per cent. Besides, price rise in pulses and meat and fish baskets for the reported month was higher over August.

However, there was a decline in inflation in the fuel and light segment.

The Reserve Bank of India, which has been slashing the key interest rate (repo) since January 2019, mainly factors in CPI while arriving at its bi-monthly monetary policy.

India Ratings and Research (Fitch Group) Principal Economist Sunil Sinha said the central bank will continue with its accommodative policy stance and may go for further rate cut in the policy review of December 2019.

However, Emkay Wealth Management Head Research Joseph Thomas said the persistence of prices at higher levels beyond the ameliorating influence of the rains may alone would invite a policy shift by the RBI to neutrality.

Principal Economist with ICRA Aditi Nayar said while food inflation did record a broad-based increase in September 2019, the primary driver of the uptick was vegetables, a fallout of the flooding in various states.

As vegetable prices normalise over the next two months, particularly with the seasonal arrival of winter supplies, food inflation may recede below 4 per cent by the end of this quarter, she said.

“While the decline in the core inflation provides some comfort, the unexpectedly sharp jump in the September 2019 CPI inflation has pushed up the likelihood of a pause in the next Monetary Policy Committee (of RBI) review, unless the headline retail inflation recedes sharply in the ongoing month,” Nayar said.

The Wholesale Price Index (WPI) released earlier in the day revealed that the inflation eased to more than three-year low of 0.33 per cent in September mainly due to falling prices of fuel and certain food articles, according to official data.

The WPI-based inflation was 1.08 per cent in August this year and 5.22 per cent in September 2018.

Inflation print for food articles, as a basket, remained nearly flat at 7.47 per cent during the month. Prices of potato fell by a further 22.50 per cent as against a decline of 21.28 per cent in August, the Commerce and Industry Ministry data showed.

For fuel and power category, inflation came in at (-) 7.05 per cent, as against (-) 4 per cent in the preceding month.