India’s CPI inflation hits nine-month high in September as food prices rise

New Delhi: India's retail inflation rose to a nine-month high in September due to higher food prices, according to government data on Monday.

Annual retail inflation, based on the All India Consumer Price Index (CPI), rose to 5.49% in September, higher than 3.65% in August. This is the highest retail inflation rate since December 2023, when it was 5.69%.

However, the inflation was within the Reserve Bank of India's (RBI) medium-term target of 2-6%.

Food inflation, a persistent challenge, rose 9.24% annually compared to a 5.66% rise in August.

It stood at 5.42% in July, 9.36% in June, 8.69% in May and 8.70% in April, according to the ministry of statistics and programme implementation (MoSPI).

A Mint poll of 20 economists had estimated retail inflation at a three-month high of 5.1% in September, driven by a rise in vegetable prices and the diminishing impact of a favourable base effect.

"Food inflation remains sticky at 9.2% and comes over a high base of 6.6% last year. The main points have been cereals (6.8%), vegetables (36%), eggs (6.3%), pulses (9.8%) and fruits (7.7%). The crux for cereal and pulses inflation is the kharif crop. In case it is satisfactory, there can be some cooling of price and inflation," said Madan Sabnavis, chief economist at Bank of Baroda.

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"Within the core segment, there has been some upside at 3.5%. Clothing and footwear, housing and light are all within the 3% mark, with fuel declining. Personal care products have high inflation due to cost effects and are as high as food inflation at 9%," Sabnavis added.

Core inflation, goods and services, excluding the more volatile food and energy prices, make up nearly 50% of the basket.

Elevated food prices

Food prices have remained elevated for over a year and stayed above 7% from November 2023 to June 2024, primarily due to last year’s uneven and below-normal monsoon rains.

While food inflation slowed in July, it rose in August and September.

Interestingly, while prices of cereals, meat and fish, eggs, and pulses fell in September compared to August, prices of milk and milk products, fruits, and vegetables rose during the month.

The price of clothing rose sequentially during September, and prices of footwear fell during the month.

"Vegetable prices rose further by 3.49% while edible oils increased by 2.91% on a MoM basis. Excess rainfall in some parts of the country has been a key factor in driving up food inflation in Sep 24," said Suman Chowdhury, executive director & chief economist, Acuité Ratings.

Interestingly, 13 of the 22 states reported an inflation of over 5% in September.

Inflation and the RBI

Earlier in October, the Reserve Bank of India (RBI) left the benchmark repo rate unchanged at 6.5%, signalling that interest rate cuts may take a while.

The central bank expects real GDP growth for FY25 at 7.2% and CPI inflation at 4.5% for the ongoing fiscal year. It last raised the repo rate to 6.5% in February 2023.

Regulating interest rates is a key for the central bank to control inflation. A higher interest rate regime makes borrowing costs more expensive, reducing demand among banks, financial institutions, and the general public, which can, in turn, bring down consumer spending and inflation.

RBI’s medium-term target for CPI inflation is 4% within a band of plus or minus 2%.

"The higher-than-expected September inflation further strengthens the case that the RBI will need to remain on the cautious side. Even the next reading appears to be settling higher than 5%," said Upasna Bhardwaj, chief economist, Kotak Mahindra Bank.

"However, the winter crop arrivals should start easing some price pressures in the weeks ahead. Overall, the upside surprise to inflation does prompt us to delay our rate cut call into 2025," Bhardwaj added.

Also Read: Mint Explainer: Why the latest WPI inflation data is worrisome