Retail inflation surged to a nine-month high of 5.49 per cent in September, driven primarily by rising food prices, according to data released by the National Statistical Office.
Economists warned risks to food inflation had not fully abated. “Factors such as uneven monsoon, pre-harvest rainfall and rising global edible oil prices add to the risks to food inflation,” said Rajini Sinha, chief economist at CareEdge.
“A combination of adverse base effect and higher prices of fruits (due to festivals in October) and fat (due to higher import duties) is expected to keep retail inflation higherin October 2024 at around 5.3-5.5 per cent range,” said Devendra Kumar Pant, chief economist at India Ratings and Research.
The base effect refers to the impact the level of inflation in the previous period has on the inflation rate in the current period. If inflation was low during the base period, a moderate price increase can show up as high inflation rate.
“Core inflation is gradually inching up. It increased to an eight-month high of 3.5 per cent in September 2024 from 3.12 per cent in May 2024. Five months of gradual increase in core inflation could be a precursor to demand revival,” Pant said.
Upasna Bhardwaj, chief economist at Kotak Mahindra Bank, said: “The higher-than-expected September inflation further strengthens the case that RBI will need to remain on the cautious side. Even the next reading appears to be settling higher than 5 per cent.
“However, the winter crop arrivals should start easing some price pressures in the weeks ahead. Overall, the upside surprise to inflation does prompt us to delay our rate cut call into 2025.”
Sujan Hajra, chief economist and executive director at Anand Rathi Shares and Stock Brokers, said: “The headline inflation is likely to range around 4.5 per cent to 5 per cent in the next couple of months which is above the RBI’s current target of 4 per cent.
Thus we do believe that the RBI may still hold the repo rate steady in 2024 and watch closely the food price trajectory and geo-political events.”
Meanwhile, inflation based on the wholesale price index (WPI inflation) rose to 1.84 per cent in September from 1.31 per cent in August.
