India inflation jumps to 5.54% in September, strengthening case for further rate hikes

[NEW DELHI] India’s retail inflation jumped to 5.54 per cent in September, data showed on Monday (Oct 12), nearing the upper end of the central bank’s 2 to 6 per cent tolerance band and strengthening the case for further rate hikes as the Iran war and weak monsoon-led price pressures ripple through the economy.

The September print was marginally higher than economists’ 5.4 per cent forecast in a Reuters poll, marking the fourth consecutive month inflation has remained above the Reserve Bank of India’s 4 per cent medium-term target and its highest level this year under the current series.

It stood at 4.83 per cent in August. Inflation in September is higher partly due to the base effects as last year’s lower price levels make this year’s inflation appear higher.

The RBI joined its global peers last week to raise its benchmark repo rate by 25 basis points to 5.5 per cent for the first time in nearly four years, citing evidence of elevated inflation expectations and broadening of price pressure.

The central bank last raised rates in February 2023.

RBI Governor Sanjay Malhotra said after the policy decision that headline CPI inflation is expected to average nearly 5.8 per cent over the next three quarters, prompting the central bank to raise its inflation forecast to 5.2 per cent for fiscal 2027 from 5 per cent earlier.

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He also warned that a weak monsoon and strong El Nino conditions pose risks to agriculture and rural demand, although ample foodgrain stocks and government measures are expected to cushion the impact.

Brent crude futures have stayed above US$100 a barrel, while a deficient monsoon has raised concerns over food supplies. India’s food inflation rose to 7.74 per cent in September from 5.97 per cent in August, driven by higher prices of staples such as onion, ginger and garlic.

Transport inflation climbed 5.01 per cent in September, as against 4.6 per cent a month ago. REUTERS