India's Retail Inflation Decreases In September, Falls Below RBI's Upper Tolerance Limit Of 6 Per Cent

India's retail inflation rate for September decreased to 5.02 per cent on an annual basis, down from 6.83 per cent in August, according to data released by the Ministry of Statistics.

The latest inflation figures are within the RBI's tolerance band of 2 to 6 per cent.

RBI's medium-term target for CPI inflation is 4 per cent within a band of +/- 2 per cent, while supporting growth. Hence, the upper tolerance limit comes to around 6 per cent.

On a monthly basis, prices experienced a deflation of -1.13 per cent. The food price inflation for September was 6.56 per cent, compared to 9.94 per cent in August. Rural inflation stood at 5.33 per cent, while urban inflation was at 4.65 per cent.

The inflation rate for vegetables saw a significant decline in September, dropping to 3.39 per cent from 26.14 per cent in August. Cereal inflation remained at 10.95 per cent for the month. The fuel and light segment experienced a deflation of -0.11 per cent in September.

The Reserve Bank of India (RBI) Governor, Shaktikanta Das, had earlier expressed optimism about inflation moderating starting in September.

Economists surveyed by the RBI have projected that headline CPI inflation will decrease from 6.6 per cent in the September quarter to 5.5 per cent in the December quarter.

Further projections indicate a decrease to 5.1 per cent in the March 2024 quarter and a range of 5.2-4.0 per cent in the first half of 2024-25. Expectations for core inflation (CPI excluding food and fuel) in the September quarter stand at 4.9 per cent.

Professional forecasters' long-term inflation expectations, based on their 5-year ahead projections, have softened to 4.9 per cent, while 10-year ahead expectations remain steady at 4.5 per cent.

As a result, the RBI has set its 2024-25 CPI target at 4.5 per cent, which is above the mandated target of 4 per cent.

In addition to the inflation concerns, the Israel-Hamas conflict is also raising worries about oil prices surpassing current assumptions. This could potentially exert pressure on inflation in the future.

In its October meeting, the RBI's Monetary Policy Committee (MPC) decided to maintain its inflation forecast for the fiscal year at 5.4 percent. This decision comes despite concerns over uneven monsoon patterns and rising global crude oil costs.

The central bank's projections for the second, third, and fourth quarters are 6.4 per cent, 5.6 per cent, and 5.2 per cent, respectively.

The MPC unanimously agreed to maintain the repo rate, the key lending rate, at 6.5 percent for the fourth consecutive time.

The committee emphasised that the moderation in CPI headline inflation is a result of various factors, including monetary policy tightening, supply-enhancing measures, and the effects of previous rate hikes. These factors are expected to continue keeping inflationary pressures in check in the coming months.