Retail inflation hits a 5-month high of 7.41% in September due to erratic rainfall, supply shocks

India’s retail inflation touched 7.41 per cent in September, up from 7 per cent in August, and 6.7 per cent in July, fuelled by high food prices, erratic rainfall, and supply shocks from Russia’s invasion of Ukraine. Prices of daily consumables like cereals and vegetables, which form the largest category in the inflation basket, have climbed over the past two years.
On the other hand, the factory output, measured in terms of the Index of Industrial Production (IIP), contracted by (-)0.8 per cent in August, as per data released by the Ministry of Statistics & Programme Implementation (MoSPI). 

Inflation figures in September

This is the ninth consecutive time that the CPI data has come above the Reserve Bank of India’s (RBI) upper margin of 6 per cent. Retail inflation in India has stayed above 6 per cent since January. In April, May, June, and August, it was above 7 per cent. High CPI will come as a setback to households’ spending power, especially for the poorer sections of our country.
The Narendra Modi government has mandated the central bank to maintain retail inflation at 4 per cent with a margin of 2 per cent on either side for a five-year period ending March 2026.

The September CPI figures are as follows:

Overall, food inflation was at 8.41 per cent, up from 7.62 per cent in August and 6.69 per cent in July. 

The Consumer Food Price Index (CFPI) or the inflation in the food basket too showed a month-on-month rise during September to 8.60 per cent, from 7.62 per cent in August, the data revealed. 

Prices of vegetables rose 18.05 per cent on year in September. Apart from this, the spices saw a rise of 16.88 per cent while cereals and products gained 11.53 per cent and milk and products rose 7.13 per cent. Egg prices slipped (-)1.79 per cent but fruits grew 5.68 per cent. 

Apart from food and beverages, the fuel and light segment rose 10.39 per cent, clothing and footwear spiked 10.17 per cent and the housing segment inched up 4.57 per cent. 

The index for cereals rose by 11.35 per cent year-on-year in September. For vegetables, it was 18.05 per cent higher year-on-year. Meanwhile, the index for pulses was 3.05 per cent higher year-on-year.  

The other volatile item of the CPI basket, fuel, saw a hike of 10.39 per cent in prices year-on-year. 

On the whole, the general index of the CPI was up 7.41 per cent in September compared to August’s 7 per cent. 

Poll prediction 

The October 3-7 Reuters poll of 47 economists suggested that inflation – as measured by the Consumer Price Index – can rise to an annual 7.30 per cent in September from 7.00 per cent in August, which is the highest since May 2022. 

 The Modi government has introduced measures to calm local commodity and food prices, including some export restrictions on rice to calm down inflation. But consumer prices have remained unperturbed and stayed above the RBI’s upper tolerance limit this year. 

 A weakening rupee is also not helping. The battered Indian rupee hit a new low of 82.32 against the US dollar on Friday and was expected to remain under pressure over the next six months, a separate Reuters poll of FX analysts showed. 

That is likely to pressure the RBI, which has raised its key repo rate by 190 basis points in four moves this year, to intensify its interest rates hikes. The RBI on September 30 hiked the repo rate to 5.90 per cent amid rising concerns over surging inflation, global headwinds, and a slump in the Rupee to its record lows. It also announced that the inflation projection for FY23 remains unchanged at 6.7 per cent primarily due to upside risks to food prices. 

(With Reuters inputs)