Retail inflation surges to its highest level in 2024, touches 9-month high of 5.5% in Sept

A sharp spike in food prices and an unfavourable base effect pushed retail inflation based on Consumer Price Index (CPI) to a 9-month high of 5.5 per cent in September against 3.7 per cent in August, government reported on Monday. With this, the possibility of policy interest rate cut further faded in the near term,

Experts say after a surprise surge in September, the October print is also estimated to be in 5 per cent plus range.

“It is likely that the increase in inflation rate for the month of September is due to high base effect and weather conditions,” a statement issued by the Statistic Ministry said. Data showed that vegetable inflation jumped to 36 per cent in September mainly on account of surge in the prices of tomato and onion with some rise in potato.

Uneven rains affected crops impacting the prices. Other items in food basket are also witnessing a rise which can impact headline inflation in the coming months.

Devendra Kumar Pant, Chief Economist with India Ratings & Research (Ind-Ra), said 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 higher in October in 5.3-5.5 per cent range.

Food inflation

Aditi Nayar, Chief Economist with ICRA, said food and beverages inflation is likely to print above the 8 per cent mark in October. Some vegetables have witnessed a sharp increase in retail prices in early October, including onion and tomatoes, which have touched 11-month and 14-month high, respectively. Additionally, prices of edible oils have also witnessed a sharp sequential increase in October 2024, following increase in customs duty in mid-September 2024.

“While an abundant monsoon has reduced risks related to foodgrains and some other crops, the volatility in vegetable prices is likely to persist,” she said.

There is one positive indication in core inflation (headline inflation minus food and fuel inflation). It increased to an eight-month high of 3.5 per cent in September from 3.1 per cent in May. “Five months of gradual increase in core inflation could be a precursor to demand revival,” Pant said.

• Also read: Govt to release buffer stock in wholesale markets to control onion prices

Rate cut call

Some hope of relief is from winter crop arrival. Upasna Bhardwaj, Chief Economist with Kotak Mahindra Bank, said: “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.”

• Also read: Government ropes in NCCF, starts selling tomatoes at ₹65/kg in Delhi after prices cross ₹100

Radhika Rao, Executive Director with DBS Bank, said the MPC is likely to adopt a forward-looking approach when deciding on the timing of a rate cut, also considering the GDP performance for Jul-Sept ahead of the next policy review. “We expect the strong finish of the monsoon to bode well for the harvest and moderate food prices toward the end of 2024, supporting the central bank’s shift toward easing,” she said.