India's retail inflation drops to three-month low in September: Report

India's retail inflation has seen a dip, reaching a three-month low in September, primarily due to softer vegetable prices. However, it still remains above the Reserve Bank of India's (RBI) target of 4 per cent, which the central bank has emphasised as crucial before considering a rate cut.

According to official data, the annual retail inflation, measured by the Consumer Price Index, registered at 5.02 per cent in September, down from the previous month's 6.83 per cent. This figure was also lower than the expectations of a Reuters poll, which had forecasted a rate of 5.50 per cent. In June, retail inflation had stood at 4.81 per cent.

Food inflation, a major contributor to the overall consumer price basket, recorded a notable decrease from 9.94 per cent in August to 6.56 per cent in September. These numbers were encouraging but remained above the upper tolerance band of 2 per cent-6 per cent set by the RBI.

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Vegetable prices, which had been a significant driver of inflation in recent months, saw a substantial reduction, dropping to 3.39 per cent in September from 26.14 per cent in the previous month. Similarly, cereal inflation also eased from 11.85 per cent in August to 10.95 per cent in September.

"The central bank is unlikely to shift away from its hawkish rhetoric for as long as there remains a significant risk of a renewed pick-up in food prices," Reuters quoted Thamashi De Silva of Capital Economics as saying. She further noted that despite the drop in headline inflation, the threat of food inflation persisted due to India's dry monsoon season.

In response to rising prices, the Indian government increased the cooking gas subsidy for low-income households from 200 rupees per cylinder in August to 300 rupees in an effort to mitigate inflation.

Reuters cited Finance Minister Nirmala Sitharaman, who also voiced concerns about global and regional uncertainties, stating that they might keep inflationary pressures elevated in the coming months. She emphasized the government's pre-emptive measures to control food inflation and their potential to alleviate price pressures in the market.

Core inflation, which excludes volatile food and energy prices, was estimated at 4.5 per cent in September, a slight decrease from 4.6 per cent-4.9 per cent in August, as per two economists, though the Indian government does not officially release core inflation figures.

However, there are still concerns about rising oil prices, hovering above $85 a barrel, and the recent Israeli-Palestinian conflict, which could further impact energy prices and overall inflation.

Madan Sabnavis, an economist at the Bank of Baroda, told Reuters that the RBI would closely monitor the impact of the El Nino weather phenomenon on crop output in Asia and the evolving situation in the Middle East to make future decisions on interest rates.

Meanwhile, prices for some food items like pulses and spices continued to rise, posing a challenge for inflation control. The RBI is expected to maintain its repo rate unchanged until June 2024, Sabnavis predicted.

(Inputs from Reuters)

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