India inflation preview: 8 experts share what is expected from September CPI data

India's Consumer Price Index-based (CPI-based) inflation, or retail inflation, for the month of September, is expected to come near 5.5 per cent thanks to a sharp decline in select food items, including vegetable prices and edible oils.

The September retail inflation print, which is expected on Thursday, October 12, may come within the Reserve Bank of India's tolerance range of 2-6 per cent after two consecutive months. India's retail inflation in July was 7.44 per cent and in August it was 6.83 per cent.

In its recent policy last week, RBI Governor Shaktikanta Das made it clear that the central bank’s inflation target is 4 per cent and not 2 to 6 per cent. RBI's latest CPI inflation projection for FY24 is 5.4 per cent, with Q2 at 6.4 per cent, Q3 at 5.6 per cent and Q4 at 5.2 per cent. CPI inflation for Q1FY25 is projected at 5.2 per cent.

Also Read: What the RBI’s monetary policy report says about inflation drivers, in charts

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Mint talked to eight experts to get their views on the upcoming inflation print. Here's what they said:

Aditi Nayar, Chief Economist, Head - Research & Outreach, ICRA

Moderation in the vegetable spike is expected to help cool the Sept 2023 inflation print to 5.5 per cent. Thereafter, we anticipate the headline CPI inflation to remain in a range of 5-6 per cent over the next three quarters.

Dipti Deshpande, Principal Economist, CRISIL

We expect CPI inflation to cool in September led by a sharp correction in vegetable prices, some softness in milk inflation and continued deflation in edible oils.

However, inflation in cereals pulses and spices continues to exert price pressures due to domestic weather shocks, geopolitical turmoil and global shortages (for instance rice). 

There is also pressure from oil where the rise in price was initially triggered by supply cuts but has now been fanned by the Middle East conflict. 

Rising oil prices will put pressure on the non-food component of inflation which played a big role this year in bringing down headline inflation from its peaks.

In September, we expect CPI inflation at about 5.7 per cent and then further softening beyond that as food inflation sees some more downside with new supplies entering the market and aided by government intervention. 

However, the pressure from cereals and pulses could bring limited respite. For fiscal 2024, we expect inflation to average 5.5 per cent with risks now brewing on account of rising oil prices.

Deepak Jasani, Head of Retail Research at HDFC Securities

We expect India's CPI to come at a three-month low of 5.3 per cent in September versus 6.83 per cent in August, returning to the Reserve Bank of India's (RBI) tolerance range of 2-6 per cent after two months.

Inflation may have been pulled down by nearly one-and-a-half percentage points in September on the back of a massive 62 per cent month-on-month (MoM) fall in tomato prices and despite onion prices rising 12 per cent in September over August, while cereals and pulses also saw their prices increase on a sequential basis. Edible oil prices, meanwhile, likely exerted downward pressure as they were largely lower last month.

V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services

The diminishing trend in CPI inflation witnessed in August will continue in September with the CPI print declining to 5.8 per cent. The prime driver of the declining retail inflation will be a decline in vegetable inflation, particularly the sharp dip in tomato prices from above ₹200 to around ₹20 in September. However, the elevated prices of food grains, pulses and sugar will prevent a sharp dip in inflation.

Shrey Jain, Founder and CEO of SAS Online

India's retail inflation is likely to drop around 5.25 per cent to 5.5 per cent in September from August's 6.8 per cent, primarily due to a correction in vegetable prices that had previously driven up inflation for two consecutive months.

Domestic factors within India appear stable and promising, with growth prospects remaining strong. However, the situation could be significantly influenced by global events, such as the escalation of the Israel-Hamas conflict beyond their borders.

If this escalation occurs, it may lead to a prolonged increase in crude oil prices. Considering India's heavy reliance on oil imports, this could potentially result in higher inflation.

If inflation increases, it can have a negative impact on the market, leading to a higher cost of living, reduced purchasing power, and potentially higher interest rates, which in turn can affect the cost of equity.

Manish Chowdhury, Head of Research, StoxBox

A sharp drop in vegetable prices, especially tomatoes, is likely to result in consumer price inflation easing to its lowest level in three months to 5.4 per cent in September compared to a 6.8 per cent reading in August. The government’s decision to subsidize LPG cylinder prices by ₹200 in late August is also likely to aid this fall and offset the rise in crude oil prices and some strength in pulses and cereals.

With inflation expected to return within the RBI’s tolerance band of 2-6 per cent following a transient spike in the last few months, we expect the RBI to adopt a wait-and-watch approach as it lets the previous rate hikes flow through the economy.

We do not foresee any rate hikes by the RBI for the remainder of FY24 and expect inflation to move closer to the 4 per cent target going ahead which may prompt a rate cut in the middle of 2024. Any inflation reading closer to 5.4 per cent may be neutral for equity markets, with volatility expected on either side in case of divergence in readings.

Kaushik Dani, Fund Manager - PMS, Abans Investment Managers

We expect India's CPI for September at around 5.5 per cent. This will be a cool-off from the previous month's 6.83 per cent and 7.44 per cent in July. Both retail inflation and core inflation are expected to move lower, as seasonal factors get digested.

Food prices movement too should have some positive impact. However, lower September CPI would not be able to pull the quarter's inflation down by a big margin. Thus, it would be market-neutral. Only a reading below 5.3-5.5 per cent would be taken positively by markets.

Also Read: Interest rate cuts likely only after Q1 FY25, say economists

Vaibhav Shah, Fund Manager, Torus Oro PMS

Post a very high CPI print of 6.83 per cent in August 2023, we expect that September month print should be well below the upper band of RBI tolerance level.

Since food forms a significant component of the CPI basket, we have witnessed moderation in food prices in the month which should help in lowering the overall retail inflation.

Also, the recent ban on exports of some food items has helped to keep inflation in check along with supply from government reserves. Though the rise in crude prices may show some impact on inflation going forward, we believe India is in a better position as most of the components showcase a downward trend.

Also Read: To curb inflation, RBI plans bond sales to suck liquidity

Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.