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India retail inflation picks up but remains below RBI target
India’s retail inflation rose marginally in September, nudged up by food and fuel prices, but short of the central bank’s 4% medium-term target, strengthening views it could tighten monetary policy in December following unchanged rates last week.
The monetary policy committee (MPC) of the Reserve Bank of India left the repo rate at 6.50% while reiterating its target of keeping consumer inflation at 4% in the medium term on a “durable basis”.”
In September, consumer prices rose 3.77% from a year earlier, compared with a 3.69% increase in August, the Statistics Ministry said yesterday.
For September, the median forecast of economists polled by Reuters was 4%, with estimates ranging from 3.60% to 4.70%.
CPI inflation has started inching up on the back of rising prices of food and other goods and services, said Rupa Rege Nitsure, chief economist at L&T Finance Holdings.
“Given the massive depreciation of the rupee and elevated crude oil prices, RBI will have to resort to policy rate signals sooner than later.”
Slower inflation in food prices, which make up nearly half of India’s consumer price index (CPI), has so far cancelled out rises in imported goods following the weakening rupee.
Food inflation rose to 0.51% from a year earlier, against 0.29% in August.
Core inflation, which excludes volatile food and fuel sectors, was seen at 5.8%, down from around 6% in August, according to analysts.
The RBI has projected inflation of 4.8% by June 2019, slightly lower than its August forecast of 5%.
It has raised its policy rate 50 basis points since June, and is widely expected to raise rates by at least 25 basis points more this year.
The next policy review is due on December 5.
Prime Minister Narendra Modi, eyeing a second term in general elections early next year, worries that rising retail petrol and diesel prices and a weakening currency could undercut his efforts to boost economic growth.
Nationwide protests prompted the government last week to cut taxes on petrol and diesel prices, which could hit federal spending on infrastructure.
Retail petrol prices have gone up 17.7% in the capital, New Delhi, and diesel prices are up 24.99% this year, denting demand for consumer durables and passenger vehicle sales.
Analysts said recent rates hikes and a weakening rupee, which has lost about 13% this year against the dollar, could hurt growth prospects in the second half of the fiscal year ending in March 2019. The International Monetary Fund forecasts India’s economy could grow 7.3% in the fiscal year ending in March 2019, versus 6.7% in the last.