India's retail inflation rises sharply to 5.49%, surpasses RBI's target
India's retail inflation has spiked sharply, touching 5.49% on an annual basis in September. The key economic parameter now stands at a nine-month high. The spike is mainly attributed to a steady surge in vegetable prices and a lower base last year. The current rate exceeds the five-year low of 3.65% in August and is also above the Reserve Bank of India's (RBI) medium-term target of 4% for the first time since July.
Actual inflation rate also exceeds predictions
A Reuters poll of 48 economists had predicted consumer price inflation to rise to 5.04% in September. However, the actual rate surpassed these predictions with estimates ranging from 3.60% to 5.40%. The main drivers of this rise were food items such as vegetables and other perishables which account for a large share of household spending in India.
Weather conditions and global trends impact food prices
The increase in food prices was attributed to heavy rainfall, which restricted the availability of key crops. "September's reading will bear the brunt of a persistent spike in vegetable prices, especially tomatoes and onions," said Dipanwita Mazumdar, an economist at Bank of Baroda. She added that edible oil prices are on an upward trend due to rising international prices.
RBI maintains retail inflation projection for FY2024-25
Despite the current surge, the RBI has kept its retail inflation projection unchanged at 4.5% for fiscal 2024-25. At the Monetary Policy Committee (MPC) meeting earlier this month, RBI Governor Shaktikanta Das had said the central bank will keep a close watch on price trends to rein in inflation. He had said that it's important to ensure headline inflation reaches and stays at the 4% target durably. RBI is unlikely to cut interest rates unless inflation is within its target.
