India's retail inflation eases to 5.02% in September, comes within RBI's tolerance mark after two months

Months after elevating to its 15-months peak level, India's retail inflation cooled down further in the month of September. Its retail inflation, aka CPI, eased to a three-month low in September on the back of softer vegetable prices. Moreover, the inflation came below RBI's upper tolerance band  of 2%-6%.

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India's retail inflation for the month of September raised by 5.02 per cent, compared with its growth of 6.83% in August, according to the data released by the ministry of statistics on Thursday.

Industry experts predicted of a cooling in inflation in the month of September on the account of a sharp decline in select food items, including vegetable prices and edible oils.

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Despite a positive reduction in inflation, CPI continued to remain above 4%, a target that the country's central bank has signalled would be key before easing rates. One of the major contributors in the consumers price basket, food inflation, also lowered last month. Food inflation rose by 6.56% in September against 9.94% in August.

High vegetable prices was the key factor in fuelling inflation for the past two months. In the wake of rising inflation, government even imposed ban rice exports, and raising duties for onions.

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Last month, vegetable inflation eased to 3.39% in September from 26.14% in the previous month. Cereal inflation in September eased to 10.95% from 11.85% in August. It has banned exports of wheat since last year.

Industry experts highlighted the contribution of components like fuel, light, vegetables, edible oil, etc. However, cereals, pulses and spices continued to witness rise in their prices.

“The thrust is from fuel and light, which is negative (government’s easing of LPG prices), and vegetables which eased to just 3.4% from the 26% levels of August. Edible oil also contributed to the decline. On the other side, cereals (11%), pulses (16%), spices (23%) maintain their pace of increase,” said Anitha Rangan, Economist, Equirus.

She also signalled towards grim outlook of food inflation on the account of uneven monsoon and several states reporting a possibility of a sub-par kharif crop, food inflation outlook remains grim. 

“While 5% is reached, the task downhill to the 4% will remain a challenge in the near future,” she added.

Decline in the inflation of fuel was the result of announcement of subsidy for low income households to 300 rupees per cylinder from 200 rupees announced in August, to contain inflation.

Despite a significant reduction in inflation, RBI has made it clear that targeting inflation of 4% and a print of below 6% may not suffice as a condition for easing its lending rates. The central bank kept its key lending rate steady for the fourth consecutive policy meeting in September.