September retail price inflation inches up, stays below RBI's 4% target

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Retail inflation rate measured by the consumer price index (CPI) rose to 3.77 per cent in September from 3.69 per cent in the previous month, remaining below the Reserve Bank of India’s (RBI’s) target of 4 per cent. 

Though the rate justifies the RBI’s status quo stance in the policy rate, at least from inflation point of view, economists believe that oil prices, exchange rate, and higher procurement prices would put pressure on the central bank to hike rates in its December review.  

The food inflation rate remained subdued at 1.08 per cent in September, though higher than 0.29 per cent in August. 

Food prices in urban areas kept falling, but at the less rate than in August. Deflation fell to 0.22 per cent from 1.21 per cent over this period in these areas. Food inflation, on the other hand, declined to 0.94 per cent in rural areas from 1.14 per cent in this period. 

This may sound good to the middle class, but not to the farmers who are already in distress. The higher MSP (minimum support price) may give some relief to them. If inflation does not rise even then, it would mean supply of agricultural produce is adequate. 

Economists, however, do not think so. 

“The rise in crude oil prices, sharp weakening of rupee, and the revision in MSPs are likely to push up the headline inflation above 4% in the ongoing quarter,” Aditi Nayar, principal economist with ICRA, said. 

She said these risks, combined with the change in RBI’s stance from neutral to calibrated tightening, suggested a likely rate hike in the December 2018 policy review. “We expect further rate hikes of 25-50 bps in the remainder of FY19,” Nayar said. 

Within food items, pulses, vegetables, and sugar saw a decrease in prices.  Inflation rate in fuels remained stagnant at 8.47 per cent. This may see some easing after the government cut excise duty on petrol and diesel by Rs 1.5 a litre, and oil-marketing companies bore Rs 1 a litre hit. Some states also cut duties.

Core inflation rate — the rate of price rise in manufactured items sans food products widely tracked by policy makers — inched down to 5.8 per cent from 5.9 per cent. 

Economists said the moderation in the core CPI inflation rate in September 2018 was largely led by the base-effect led easing in housing inflation. Housing inflation rate fell to 7.07 per cent from 7.59 per cent.