September retail inflation hits 14-month high on the back of higher food prices

Food prices index stood at an alarming 5.11 per cent, up from 2.99 per cent in August. The unexpected increase was solely led by a 15.4 per cent jump in vegetable prices.

Published: 14th October 2019 06:15 PM  |   Last Updated: 14th October 2019 06:42 PM   |  A+A-

Retail inflation

Image for representational purpose only

By Express News Service

NEW DELHI: Consumer price inflation (CPI), which maintained an elegant calm for months, is finally heating up.

In September, prices rose to a 14-month high of 3.9 per cent, led by a steep rise in food prices, and an unfavourable base effect.

Food prices index stood at an alarming 5.11 per cent, up from 2.99 per cent in August. The unexpected increase was solely led by a 15.4 per cent jump in vegetable prices.

ALSO READ: Rs 80 per kg and climbing: Onion prices may not come down anytime soon, here's why!

At 3.9 per cent, inflation is at a kissing distance from the RBI's cherished goal of 4 per cent. It has remained below the target for 14 months in a row now. Inflation stood at 3.28 per cent in August and 3.7 a year before in September 2018.

The September spike in prices is still in line with RBI's revised inflation estimates and leaves room for further rate cuts for one simple reason.

The price rise will be seen as a seasonal occurrence given the extended monsoon, which delayed harvest and interrupted supply chain of agricultural produce. For instance, rains hit supply lines of onions, whose prices jumped 54 per cent last month according to government data. However, this was somewhat offset by a 19 per cent price decline in tomatoes.

ALSO READ: After onion, now tomato price soar to Rs 80 per kg in Delhi

" India’s Sep CPI surged to 3.99% from 3.21% in August, the market was expecting  3.70%. The uptick in food and fuel inflation has led to a surge in CPI print. Due to heavy and unevenly distributed rains onion and tomato prices have skyrocketed. Despite this rise in food inflation, with headline inflation currently below RBI’s medium-term target of 4%, we expect the central bank to lower rates to revive growth," said Rahul Gupta, Currency Research Head, Emkay Global Financial Services Ltd. 

Given the seasonal aberration, RBI is unlikely to develop cold feet as food and fuel, which account for 57 per cent of the CPI basket, their direct influence on monetary policy is limited and hence the central bank may remain unnerved and continue its accommodative policy and may even reduce policy rates in December.
Early this month, RBI slightly revised inflation forecasts upwards to 3.4 per cent for Q2FY20 and to 3.5-3.7 per cent for the second half of the fiscal.


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