Retail inflation in India hit a nine-month high at 5.49 percent in September, driven by soaring vegetable and other food products prices, according to data released by the National Statistics Office (NSO) on Monday. The consumer price index (CPI)-based inflation had been recorded at 3.65 per cent in August 2024 and 5.02 percent in September last year, with the latest increase marking the highest since December 2023, when inflation stood at 5.69 percent.
The sharp rise in food inflation, particularly in vegetables, was a key factor in the overall increase. Food basket inflation surged to 9.24 percent in September, significantly higher than August’s 5.66 percent. The NSO attributed this spike to weather conditions and a high base effect, exacerbating price pressures across the food sector.
The Reserve Bank of India (RBI), which aims to maintain retail inflation at 4 percent with a 2 percent margin, is closely monitoring the price situation. The central bank had left interest rates unchanged earlier in October.
Food Prices Drive Wholesale Inflation Higher
Wholesale price inflation (WPI) also increased to 1.84 percent in September from 1.31 percent in August. The surge was primarily driven by a 48.73 percent rise in vegetable prices. Inflation in onions and potatoes reached particularly high levels, at 78.82 percent and 78.13 percent, respectively, adding to household burdens.
Despite the sharp increase in food prices, the fuel and power category experienced deflation, softening the overall inflationary pressure. The WPI inflation rate had been negative in September 2023, at -0.07 percent.
Setback to the expectaions for interest rate cuts
The recent rise in retail and wholesale inflation has dampened hopes for a reduction in bank interest rates. The Reserve Bank of India (RBI) aims to maintain retail inflation at around 4 percent, and this metric plays a crucial role in shaping monetary policy decisions. With inflation on the rise, the RBI recently chose to keep the key interest rate (repo rate) unchanged, signalling a cautious approach to any potential rate cuts.