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Retail inflation may  ease  further to 4.5% in Sep

Inflation may return to the 6% mark next quarter, lifted by high energy and input prices, and pressures from reopening the services sector, said Radhika Rao, an economist at DBS Bank (Photo: Bloomberg)Premium
Inflation may return to the 6% mark next quarter, lifted by high energy and input prices, and pressures from reopening the services sector, said Radhika Rao, an economist at DBS Bank (Photo: Bloomberg)

The median forecast of 4.5% is significantly below the 5.3% print in August, which would make it the lowest since April. The statistics ministry will issue the inflation data for September on Tuesday

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India's retail inflation is likely to have cooled for the fourth straight month in September due to a decline in food prices from the year earlier, a Mint poll of 15 economists found. The median forecast of 4.5% is significantly below the 5.3% print in August, which would make it the lowest since April. The statistics ministry will issue the inflation data for September on Tuesday.

Despite the year-on-year moderation, economists worry that core inflation will remain high. The slowdown would, in large part, be due to the base effect: the 7.3% figure in September 2020 was way above the Reserve Bank of India’s (RBI’s) upper tolerance limit of 6%.

Other upward risks remain well in place, with ongoing festival demand adding to price pressures, analysts said. Retail inflation has already remained well above RBI’s medium-term mandate of 4% for nearly two years. A 4.5% inflation would mean a 0.3% sequential uptick, quicker than the preceding month. Forecasts in the survey ranged from 4.26% to 4.80%.

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Momentum builds

“CPI inflation cooled in September, dampened by a fall in food inflation," said Aditi Nayar, chief economist at Icra Ltd. “The favourable (high) base is likely to further ease inflation in October-November, even as fuel and core pressures are expected to strengthen."

Kaushik Das, chief India economist at Deutsche Bank, said the “present benign trend" may be temporary. RBI’s monetary policy committee (MPC) is set to announce its fourth policy review of the fiscal on Friday. The recent drop in inflation figures could provide a breather to policymakers, but the underlying price pressures will be of concern. So far, they have refrained from changing their accommodative stance to avoid disrupting the economy’s nascent recovery. However, persistently high core inflation, as well as the fact that base effects would subside at the turn of the year, could be a focus for future policy changes.

At its August meeting, the MPC raised its retail inflation prediction for FY22 to 5.7% from 5.1%. It also raised its forecast for the September quarter from 5.4% to 5.9%. A September inflation figure of 4.5% would translate into a 5.1% inflation for the full quarter, below the MPC’s forecast.

Inflation may return to the 6% mark next quarter, lifted by high energy and input prices, and pressures from reopening the services sector, said Radhika Rao, an economist at DBS Bank. An upward push in prices of staples such as vegetables amid delayed rains may keep inflation high, she said.

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