India’s retail inflation picks up

India’s retail inflation rose marginally in September, nudged up by food and fuel prices, but short of the central bank’s 4 per cent medium-term target, strengthening views that it could tighten monetary policy in December following unchanged rates last week.

Reserve Bank of India’s (RBI) monetary policy committee (MPC) left the repo rate at 6.50 per cent while reiterating its target of keeping consumer inflation at 4 per cent in the medium term on a “durable basis”.

In September, consumer prices rose 3.77 per cent from a year earlier, compared to a 3.69 per cent increase in August, the Statistics Ministry said yesterday.

For September, the median forecast of economists polled by Reuters was 4 per cent, with estimates ranging from 3.60 per cent to 4.70 per cent.

Rising prices

Consumer Price Index (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 CPI, has so far cancelled out rises in imported goods.

Food inflation rose to 0.51 per cent from a year earlier, against 0.29 per cent in August. Core inflation, which excludes volatile food and fuel sectors, was seen at 5.8 per cent, down from around 6 per cent in August, according to analysts.

RBI has projected inflation of 4.8 per cent by June 2019, slightly lower than its August forecast of 5.0 per cent. It 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. Prime Minister Narendra Modi, eyeing a second term next year, worries that rising petrol and diesel prices and a weakening currency could undercut efforts to boost economic growth.

Recent rates hikes and a weakening rupee, which has lost about 13 per cent this year against the dollar, could hurt growth prospects in the second half of the fiscal year ending March 2019, analysts say.