Retail Inflation likely to increase to 5% in September

Retail inflation: In India, retail inflation as measured by the Consumer Price Index is likely to have surged around 5 per cent in September, largely due to a confluence of factors, including base effects and growing food prices. This would be the first time inflation would have crossed the 5 per cent mark since June, after two months of lower inflation rates - 3.6 per cent in July and 3.7 per cent in August. Official inflation data will be released by the government on Monday.

 RBI governor Shaktikanta Das also spoke about this in his address to the recently concluded monetary policy meeting, saying it makes a case to remain cautious of inflation. The recent inflation trends have again brought up the fear of adjustment in the policy interest rates. The MPC kept the rate unchanged earlier this month by citing higher inflationary expectations. Shocks to inflationary pressures include food prices that surged upward and volatility in global crude and commodity markets.

RBI Governor Shaktikanta Das hinted that the September CPI print is likely to witness an appreciable jump due to base drags and food inflation which are largely influenced by production shortfalls of onions, potatoes, and chana dal in the ongoing agriculture year.

Prospects for rate cuts diminished

The MPC has a mandate to keep inflation within a target range of 4 per cent, with a permissible swing of 2 per cent in either direction. While there could be a possibility of rate cuts if inflation stays below 4 per cent sustainably, the outlook at present does not indicate that this cut will happen anytime soon.

Analysts expect CPI inflation to rise in September on the back of the reversal of base effects; however, food inflation is likely to ease from the onset of October as the kharif harvest is likely to increase market supplies going ahead.

Future Outlook and Risks

Das remains guardedly positive about the inflation trajectory, which he projects will begin declining during the January-March quarter of next year with the strong kharif harvest and sufficient cereal stockpiles on hand. Nonetheless, he admitted that there are some risks associated with inflation posed by unexpected weather events as well as possible stresses on geopolitics that might draw up the prices of commodities.

International crude oil prices have been rising in recent times, a trend coupled with rising food and metal prices, according to both the FAO and the World Bank. This might thus be seen as driving inflation upwards if these trends continue.