Retail inflation likely eased in September, but may be higher than RBI hopes

India’s retail inflation is likely to have retreated below 6% in September after two months over the central bank’s tolerance threshold, thanks to cooling prices for most essential commodities and food items, barring pulses that are seeing a sustained uptick in market prices.

Bank of Baroda economists, who put out a monthly index on essential commodities’ prices, expect consumer price rise last month to have dropped to 5.7% from 6.8% in August and a 15-month high of 7.4% in July. Food inflation stood at around 10% in August.

The National Statistical Office will release the Consumer Price Index (CPI) numbers for September this Thursday. Last Friday, the Monetary Policy Committee of the Reserve Bank of India (RBI) revised its average inflation projections for the July to September quarter from 6.2% to 6.4%. The upgraded estimate implies that the RBI expects September’s retail inflation print to be between 4.9% and 5%.

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Retail inflation eases; food prices still bite

“Broadly, price pressures assuaged in September, with the reversal of tomato, potato and onion prices being the primary driver. More importantly, the moderation in food prices is broad-based,” said Dipanwita Mazumdar, economist at Bank of Baroda (BoB), noting that the base effects from last September when inflation stood at 7.4% will also alleviate the headline inflation number to an extent.

Pulses play spoilsport

“The only spoilsport continue to be pulses,” she added, with prices of all varieties of dals clocking sharp sequential upticks in September. The bank reckoned that inflation in tur dal year-on-year, hardened to 31.5% last month from 27.3% in August, while moong dal prices rose 10.7% (from 9.2% in August) — their highest rates in 2023.

Rice prices remained sticky, rising 11.1% in September compared to 11% in August, while onion inflation is expected to have sped to 29.5% from 17.6% in the previous month.

The rise in the BoB Essential Commodity Index moderated to 2.9% in September from 6.3% in August, with 35% of the commodities seeing softening price momentum. On a month-on-month basis, the index was down 1.8% from a 0.7% uptick in August, with retail prices of 12 of 20 essential commodities dropping

In a report on food plate costs last week, Crisil Market Intelligence and Analytics estimated a 17% dip in the cost of vegetarian food in September from August levels, while non-vegetarian plates became 9% cheaper. The firm had cited lower tomato and LPG cylinder prices as the main factors for the price correction.