India's retail inflation for Sept surges to 9-month high at 5.5%

India's retail inflation, based on the All India Consumer Price Index (CPI), rose to a nine-month high of 5.49% in September 2024 amid high vegetable prices, according to the latest data put out by the Ministry of Statistics & Programme Implementation (MoSPI). The retail inflation rose on both year-on-year and quarter-on-quarter basis, with August 2024 CPI at 3.65% and September headline inflation at 5.02%.

Corresponding inflation rates for rural and urban are 5.87% and 5.05%, respectively. "The increase in inflation rate for September 2024 is due to high base effect and weather conditions," says the ministry.

The All India Consumer Food Price Index (CFPI) number spiked to 9.24% in September 2024, a sharp rise from 5.66% in August and 6.62% in September 2023. The corresponding inflation rates for rural and urban areas are 9.08% and 9.56%, respectively.

"With the dissipation of the favourable base, the CPI inflation surged to a 9-month high of 5.5% in September 2024 from 3.7% in August 2024. Inflation in the food and beverages sub-group rose sharply to 8.4% from 5.3% in the previous month, accounting for as much as 142 bps of the 183 bps uptick in the headline print between these months. The surge in the food and beverages inflation in September 2024 vis-à-vis August 2024 was largely led by vegetable inflation, which surged to a 14-month high of 36.0% from 10.7% in the previous month. Excluding this, food and beverages inflation slumped to a 59-month low of 3.9% in September 2024 from 4.3% in August 2024," says Aditi Nayar, chief economist and head of research and outreach, ICRA.

The headline CPI inflation had softened significantly in July and August (below 4%), with base effect playing a major role in July. Food inflation experienced a certain degree of correction during these two months.

RBI Governor Shaktikanta Das, during the policy announcements this month, said the CPI print for September could see a "big jump" due to unfavourable base effects and pick up in food price momentum, caused by the lingering effects of a shortfall in the production of onion, potato and chana dal in 2023-24.

"The headline inflation trajectory, however, is projected to sequentially moderate in Q4 of this year due to good kharif harvest, ample buffer stocks of cereals and a likely good crop in the ensuing rabi season. Unexpected weather events and the worsening of geopolitical conflicts constitute major upside risks to inflation. International crude oil prices have become volatile in October," he said.

The recent uptick in food and metal prices, as seen in the Food and Agricultural Organisation (FAO) and the World Bank price indices for September, if sustained, could add to the upside risks, he said.

The RBI has projected the CPI inflation for 2024-25 at 4.5%, with Q2 at 4.1%; Q3 at 4.8%; and Q4 at 4.2%. CPI inflation for Q1:2025-26 is projected at 4.3%.

The RBI was able to bring the inflation horse to the stable, i.e., closer to the target within the tolerance band compared to its heightened levels two years ago. "We must keep the horse under a tight leash so that we do not lose control. Going forward, we need to closely monitor the evolving conditions for further confirmation of the disinflationary impulses," said Das.

The retail inflation numbers come amid a rise in India’s wholesale inflation to 1.84% in September from last month’s 1.31% on the back of higher food prices. The wholesale price index (WPI) witnessed a slight contraction of -0.1% in September 2023. August recorded the lowest wholesale inflation in 4 months after a 2.04% WPI inflation recorded in July.