Retail Inflation expected to surge to 5% in September

Retail inflation: Retail inflation in India, measured by the Consumer Price Index (CPI), is anticipated to have surged to around 5 per cent in September, primarily due to a combination of base effects and rising food prices. This increase would mark the first time inflation has crossed the 5 per cent threshold since June, following two months of lower inflation rates in July (3.6 per cent) and August (3.7 per cent). The government is set to release official inflation data on Monday. In the recently concluded monetary policy meeting, RBI governor Shaktikanta Das also talked about being cautious of inflation.

The recent inflation trends have raised concerns about potential adjustments to policy interest rates. The Monetary Policy Committee (MPC) had previously kept the rate unchanged earlier this month, citing higher inflationary expectations. Factors contributing to the inflationary pressures include unexpected rises in food prices and volatility in global crude and commodity markets.

RBI Governor Shaktikanta Das indicated after the MPC meeting that September’s CPI print is expected to show a significant jump due to adverse base effects and a surge in food prices, particularly influenced by production shortfalls of onions, potatoes, and chana dal in the current agricultural year.

Rate Cut Prospects Remain Diminished

The MPC is tasked with maintaining inflation within a target range of 4 per cent, with a permissible swing of 2 per cent in either direction. While there could be a possibility of rate cuts if inflation stays below 4 per cent sustainably, the current outlook suggests that the likelihood of such cuts in the near term is low.

Analysts forecast that CPI inflation will accelerate in September due to the reversal of base effects, but she also anticipates that food inflation will moderate beginning in October as the kharif harvest is expected to boost market supplies.

Future Outlook and Risks

Das remains cautiously optimistic about the inflation trajectory, projecting a decline in overall inflation rates from the January-March quarter of next year, driven by a strong kharif harvest and ample cereal stockpiles. However, he also acknowledged potential risks that could impact inflation, including unexpected weather events and geopolitical tensions that could affect commodity prices.

The recent volatility in international crude oil prices, along with rising food and metal prices as reported by the Food and Agricultural Organization (FAO) and the World Bank, may contribute to upward inflationary pressures if these trends continue.