Inflation cooled to 5% in September

India’s retail inflation eased from 6.83% in August to 5.02% in September, breaking a two-month streak over the tolerance threshold of the Reserve Bank of India (RBI), with the rise in food prices easing to 6.6% from almost 10%.

Rural inflation stood at 5.33% in September, compared to 7% in August, while the price rise faced by urban consumers moderated more sharply to 4.65% last month from 6.6% in August.

Amid a mixed trend in food items, inflation in vegetables crashed from 26.1% in August to just 3.4% in September. But inflation in cereals remained sticky at 11% and the pace of price rise in pulses accelerated from 13% in August to 16.4% last month.

ALSO READ

RBI flags high inflation as key risk to macroeconomic stability, vows to bring inflation to 4% after status quo on rates

LPG rate cut impact

The LPG cylinder price cuts unveiled by the Centre last month pushed the year-on-year inflation in fuel and light prices for households from 4.3% in August to -0.1% in September. Base effects from September 2022, when consumer prices rose 7.4%, also helped ease the inflation rate, which was lower than economists’ expectations, but almost in line with the central bank’s Monetary Policy Committee’s (MPC) projections.

Last week, the MPC raised its average inflation projection for the July-to-September quarter from 6.2% to 6.4%, and the numbers released by the National Statistical Office (NSO) on Thursday put the average pace at 6.43%. In the current quarter, the MPC expects inflation to average 5.6%; for the full year 2023-24, it expects an average rate of 5.4%.

Rising protein prices

On a month-on-month basis, food prices fell 2.2% in September, while overall consumer price levels dropped 1.1%. Milk inflation eased slightly from 7.7% in August to 6.9% in September, but some other key protein sources such as eggs (6.4%), meat and fish (4.11%) clocked higher inflation last month.

The price rice in spices remained almost unchanged at 23.1%, while fruits inflation jumped from 4% in August to 7.3% in September, and sugar inflation accelerated to 4.5%.

However, 13 of the 22 States for which the NSO releases inflation rates recorded a higher price rise than the headline figure of 5.02%, with Rajasthan and Haryana recording the steepest inflation at 6.5%. Inflation was the lowest in Chhatisgarh at 1.98%, and below the 5% mark in eight other States, including Tamil Nadu (4.5%), Madhya Pradesh and West Bengal (3.7% each), and Kerala (4.7%).

“From here, the Kharif harvest will have a bearing on inflation along with the El-Niño effect in Asia, and the evolution of the Israel-Palestine crisis,” said Madan Sabnavis, chief economist at Bank of Baroda.

Moreover, costs of services like health, up 5.9% in September, and personal care (8.5%) are still rising, while higher airline and hospitality costs will also get reflected in the months ahead, he pointed out.