CPI Inflation Slides To Five-Month Low In September

Retail inflation declined as expected in September, led by base effect but also lower prices across a number of food items.

Consumer Price Index inflation stood at 4.35% in September 2021, compared with 5.3% in August 2021, according to data released by the Ministry of Statistics and Program Implementation on Tuesday.

Inflation in the food and beverages category fell to 1.61% from 3.8% in August. This was the lowest in twenty-nine months. Core inflation was stickier. Core inflation- ex-food, fuel and light, was at 5.85% in September, compared to 5.89% in August.

CPI inflation was also lower than expectations. A Bloomberg poll of 35 economists had estimated inflation at 4.5% for September 2021.

With September inflation of 4.5%, CPI has averaged 5.1% in Q2 FY22 and is in line with the RBI’s latest downward-revised forecast, said Sreejith Balasubramanian, economist, Fund Management, IDFC AMC. The food price trajectory will continue to remain important as some vegetable prices have reversed direction and sequentially picked up in October, he said.

Aditi Nayar, chief economist at ICRA also said that while the extent of the fall in CPI inflation from the previous month is considerable, and higher than forecasted, it has been driven primarily by food items, and to a small extent, housing. Other sub-sectors recorded flat or higher inflation readings in September, which is a concern since rising energy, metals and logistical costs could only add to price pressures.

A high base is expected to temporarily dampen the CPI inflation for October-November 2021 to below 4%, before an upturn resumes in the remainder of this fiscal, Nayar said.

Inflation Internals (Year-On-Year)

• Inflation in oils and fats was at 34.2%, compared with 33% on an annual basis in August 2021.

• Inflation in the pulses category was at 8.75%, compared with 8.8% last month.

• Vegetables continued to see disinflation, with prices falling 22.47% after a decline of 11.7% in the preceding month.

• Clothing and footwear inflation was at 7.16%, compared with 6.8% last month.

• Housing inflation stood at 3.58%, compared with 3.9% in the previous month.

• Fuel and light inflation stood at 13.63%, compared with 12.95% last month.

• Inflation in transport and communication was at 9.53% in September, compared with 10.2% in August.

The solid month-on-month uptick of 0.5% for clothing and footwear in September 2021 is a hint of some revival in domestic demand, Nayar said.

Food Price Drop Continues To Lead Inflation Lower

Inflation in food and beverages declined to the lowest since April 2019. The cooling of food and beverages inflation to 1.61% in September was the chief driver behind the moderation in the CPI. In month-on-month terms, the food and beverages basket remained flat.

While eggs, fruits and vegetables prices declined on a monthly basis, oils, the cost of pulses and sugar rose.