India’s fastest inflation this year to keep RBI on guard
INDIA’S inflation accelerated at a faster pace than expected in September, justifying the central bank’s caution as calls to cut interest rates grow.
The consumer price index rose 5.49 per cent in September from a year earlier, the quickest pace in nine months, data from the Statistics Ministry showed on Monday (Oct 14). That compares with a reading of 3.65 per cent in August and a 5.1 per cent median forecast in a Bloomberg News survey of economists.
Month on month, inflation picked up 0.6 per cent in September from a year ago, after no change in August, according to the report.
While the latest price data was foreshadowed by the Reserve Bank of India (RBI) last week when it predicted that inflation would accelerate in September, largely due to statistical reasons, the higher-than-expected print may scuttle a rate cut this year.
Governor Shaktikanta Das has repeatedly said he wants to bring inflation down to the 4 per cent target level on a durable basis before he considers easing.
The rate-setting panel though, which Das chairs, shifted the policy stance to neutral at its meeting earlier this month, setting the stage for its first interest-rate cut in four years even as it kept the rate unchanged at 6.5 per cent.
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“The higher than expected September inflation further strengthens the case that RBI will need to remain on the cautious side,” said Upasna Bharadwaj, an economist at Kotak Mahindra Bank, predicting inflation may remain above 5 per cent in the next reading. “The upside surprise to inflation does prompt us to delay our rate cut call into 2025.”
Food prices, which make up about half of the consumer price basket, climbed 9.24 per cent in September from a year earlier, after rising 5.66 per cent in August. Vegetable costs surged 36 per cent in September from a year ago.
Excluding volatile food and fuel prices, the core measure of inflation accelerated slightly to 3.56 per cent from 3.44 per cent.
There are signs that inflation may moderate in the coming months due to above-normal rains. India recorded its best monsoon season in four years, setting the stage for a bumper harvest of crops such as rice, and boosting economic prospects for rural areas.
Housing prices inched higher to 2.78 per cent from a year earlier, up from 2.66 per cent in August. Clothing and footwear costs were largely unchanged at 2.7 per cent.
“Inflation uncertainties continue to persist in the near term, particularly with the recent rise in commodity prices such as vegetable oils,” said Sakshi Gupta, senior economist at HDFC Bank. “The chances of a December rate cut at this stage remain low and are likely to hinge on how commodity price pressures evolve.” BLOOMBERG
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