With no letup in onion prices, retail inflation in October is likely to cross the 4% medium term target of the Reserve Bank of India for the first time since July 2018.
Retail inflation sharply accelerated in September to a 14-month high of 3.99% as food inflation nearly doubled to 5.1%. A Bloomberg survey of 33 economists pegged retail inflation at 4.35% in October. That would be the highest since June last year.
Supply disruption after floods in states, such as Maharashtra, in August led to onion prices touching ₹80 per kg in some parts of the country. After banning exports of onions and imposing stock limits on local traders, the Centre decided to import the essential commodity to curb rising prices.
“The government has decided to import 1 lakh tonnes of onions to control onion prices. MMTC will make the imported onions available for distribution in the country from 15 November to 15 December and NAFED has been entrusted with the responsibility of distributing the onions to every part of the country," consumer affairs minister Ram Vilas Paswan tweeted last Saturday.
However, the rise in inflation is unlikely to deter the RBI from cutting policy rates in its December monetary policy review, with a set of macro-economic data pointing towards sharper than expected deceleration in the Indian economy. RBI has already cut policy rates five times in a row this year by a cumulative 135 basis points to 5.15%.
India’s factory output shrank for the second straight month at 4.3% in September, recording its worst show since the present series was launched in April 2012. This could mean GDP growth is likely to have slowed to less than 5% in the quarter ended September, data for which is to be released on 29 November. Economic growth rate had cooled to a six-year-low of 5% in the June quarter.
Nomura has projected September quarter GDP growth to decelerate to 4.2% from 5% in the June quarter of FY20. The brokerage last week cut its overall GDP growth forecast for FY20 to 4.9% from 5.7% estimated earlier, the lowest so far among financial services group.