Retail inflation rises to 14-month high of 3.99% in Sepember on costlier food items

Retail inflation spiked to 14-month high at 3.99 percent in September mainly due to higher prices of food items, government data showed on Monday. The earlier high-level of retail inflation was 4.17 percent in July 2018.

The consumer price index (CPI) based inflation was registered at 3.28 percent in August. On a year-on-year basis, inflation was 3.70 percent in September 2018.

The price rise in the food basket was recorded at 5.11 percent in September, as against 2.99 percent in the preceding month, data from the Ministry of Statistics and Programme Implementation (MoSPI) showed.

The inflation print for vegetables shot up to 15.40 percent during the month.

However, the headline inflation still remained within the comfort zone of the Reserve Bank India (RBI), which mainly factors in CPI while arriving at its bi-monthly monetary policy.

Representational image.. AFP.

Subdued inflation and an economic slowdown have allowed the central bank to cut interest rates by a total of 135 basis points this year, including a 25-basis-point cut earlier this month, making it the most aggressive central bank in Asia.

The RBI said it expected inflation to stay below its medium-term target through to the early months of the 2020-21 fiscal year, while lowering its economic growth forecast to 6.1 percent for the current year ending March 2020, from an earlier estimate of 6.9 percent.

Economists said economic growth could fall as low as 5.8 percent, dragged down by a slump in consumer demand and investment, encouraging the RBI to cut rates for the sixth consecutive time at its next meeting in December.

Garima Kapoor, economist and vice-president at Elara Capital, said the arrival of the new crop in the market could ease food prices and so calm inflation, providing the RBI with the headroom to cut rates further.

“We expect the MPC (Monetary Policy Committee) to cut the policy repo rate by another 50 basis points until March-2020 with a 25 basis points cut in December,” she said, referring to the central bank’s benchmark interest rate.

Separately, figures released on Friday showed industrial output shrank 1.1 percent in August, the worst performance in nearly seven years.

Annual wholesale price-based inflation  eased to 0.33 percent in September, from 1.08 percent in the previous month, while economists in a separate Reuters poll said the central bank was not yet done with rate cuts.

India’s unemployment rate was 7.16 percent in September, compared with 6.47 percent a year ago and 8.2 percent in the previous month, estimates from the Centre for Monitoring Indian Economy, a Mumbai-based think-tank, showed.

The next decision from the RBI’s monetary policy committee (MPC) is due on 5 December.

India’s passenger vehicle sales slumped 23.7 percent in September, the 11th straight month of declines, prompting an industry body to flag more job cuts if sales failed to pick up soon.

“All high-frequency indicators of demand indicate soft demand conditions,” Kapoor said.

(With inputs from agencies)