India’s Retail Inflation Jumps To The Highest Since January

Retail inflation jumped to its highest in eight months in September on the back of rising food prices.

The Consumer Price Index-based inflation stood at 7.34% last month compared with 6.69% in August, according to data released by the Ministry of Statistics and Programme Implementation on Monday. A Bloomberg poll had forecast inflation at 6.9% in September.

Inflation in the food and beverages category stood at 9.73% in September against 8.29% in August, led by higher prices of vegetables, pulses, meat and fish. This was the highest since January 2020.

At 7.34%, inflation remained well above the Monetary Policy Committee’s target of 4 (+/-2)%. The panel, however, at its meeting last week said it will look through the current bout of high inflation as it’s mostly driven by higher taxes on petroleum products, increased transportation costs and disruptions in the food supply chain. It expects inflation to ease to 5.4-4.5% in the second half of the current financial year.

CPI inflation hardened beyond our expectations to an eye-watering 7.34%, driven primarily by a further uptick in food inflation, said Aditi Nayar, principal economist at ICRA. Even though the high food inflation will eventually prove to be transient, with the favourable base effect and kharif arrivals to soon initiate a downward trajectory, the average inflation figures for FY21 as well as H2 FY21 are likely to be uncomfortably high, Nayar said.

Inflation Internals

• Within the food and beverages category, vegetable inflation remained high at 20.73% in September compared with 11.4% in August. Inflation in fruits stood at 3.21% against 1% last month.
• Among vegetables, potato inflation rose to 101.98% in September from 79.6% in August. Tomato inflation rose to 54.58% in September from 7% in August. Onion inflation fell by 12.8% in September compared to -4% in August.
• Inflation in the meats category was at 17.6% compared with 16.5% in August, while that for pulses stood at 14.67% against 14%.
• Inflation in transport and communication was at 11.5% versus 11.05% in August.
• Inflation in air fare rose remained high at 141.65% in September from 142.62% in August.
• Clothing and footwear inflation was at 3.04% in September compared with 2.8% in August.
• Housing inflation stood at 2.83% compared with 3.1% in the preceding month.
• Fuel and light inflation stood at 2.87% against 3.1% in August.
• Health inflation rose to 4.9% in September versus 4.71% in August.
• Personal care inflation rose to 12.31% in September from 14.45% in August.

Elevated vegetable prices have taken headline CPI to a new peak, and we do not expect a return to the target band in October either, said Rahul Bajoria, chief India economist at Barclays.

He estimated CPI inflation at 6% for FY21 compared to an earlier estimate of 5.5%. The RBI has already signalled its willingness to look through transient price pressures, but perishable prices need to be tackled, Bajoria said.