Analysts attribute much of the inflation to soaring prices of key vegetables like tomatoes and onions, along with rising international prices of edible oils
Inflation concerns are growing across India, with rising prices posing risks to both the economy and citizens' well-being.
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In September, India's retail inflation surged to a nine-month high of 5.49% year-on-year, fueled by persistent increases in vegetable prices and a favourable base effect from the previous year. This marks a sharp rise from the five-year low of 3.65% recorded in August and surpasses the Reserve Bank of India's (RBI) medium-term inflation target of 4% for the first time since July.
Assam is also feeling the inflationary squeeze, with the state's inflation index rising from 187.8 in September last year to 196.9 this year, reflecting a significant increase in the cost of goods and services.
The inflation spike is linked to last year's high base, which initially helped lower inflation in July and August. However, the base effect reversed in September, contributing to the current increase. Despite these fluctuations, inflation remains within the RBI's tolerance range of 2-6%.
Food inflation, which makes up nearly half of the Consumer Price Index (CPI) basket, surged to 9.24% in September, up from 5.66% in August. Rural inflation jumped to 5.87%, compared to 4.16% the previous month, while urban inflation rose to 5.05% from 3.14%. A Reuters poll of economists had predicted a jump in consumer price inflation to 5.04% for September.
Vegetable prices saw a dramatic rise, with a 35.99% increase in August compared to 10.71% in July, driven by heavy rains that disrupted crop availability. Analysts attribute much of the inflation to soaring prices of key vegetables like tomatoes and onions, along with rising international prices of edible oils. Fuel and light inflation, however, decreased slightly, and inflation for pulses eased to 9.81% from 13.6% in August.
In response, the RBI maintained its retail inflation forecast at 4.5% for the 2024-25 fiscal year, following its October Monetary Policy Committee (MPC) meeting.
While the central bank opted to keep interest rates unchanged, it shifted its stance to 'neutral,' signalling greater clarity on inflation trends. However, economists warn that food prices, particularly for a narrow segment of goods, remain a challenge for India's disinflation efforts, despite stability in other sectors.
Looking ahead, the RBI is expected to adopt a forward-looking approach to potential rate cuts, factoring in GDP performance and the impact of the monsoon on harvests, which could help stabilise food prices by the end of 2024.
