Inflation faced by consumers eased to 5% in September, bringing some relief after a sharp rally in prices that began with July’s 15-month high inflation rate of 7.44%. This not only marks a return to the 2% to 6% tolerance range of the Reserve Bank of India (RBI), but also matches the bank’s upgraded estimate of 6.4% average inflation between July and September. Of course, the preferred inflation rate remains 4% and the RBI will remain “resolutely focused” on durably attaining that. By its own reckoning, that target appears distant — this quarter is expected to average 5.6% inflation, followed by 5.2% between January and June 2024. Even these expectations may need to be tempered. While the RBI has projected an average inflation of 5.4% in 2023-24, the International Monetary Fund and World Bank raised their estimates this month to 5.5% and 5.9%, respectively. So, September’s 5% inflation, which was partly aided by base effects from 2022 when the inflation pace was 7.4% and partly by a sharp dip in volatile prices of tomatoes and vegetables, with a little help from the Centre’s LPG price cuts, is unlikely to sustain or cool further.
Although food inflation which had spurred the spike in prices through July and August, has eased to 6.6% in September, this was disproportionately influenced by crashing vegetable prices even as the inflation pace accelerated for pulses, fruits, eggs and sugar. Cereals and spices inflation remained sticky at 11% and 23.1%, respectively. Rural inflation remained higher than that faced by urban consumers, and with the erratic monsoon hurting kharif season sowing in crops like pulses and uncertainties about the El Niño effects on the rabi crop, weak rural demand as well as food price pressures remain a source of concern for the economy. The Wholesale Price Index released on Monday shows pulses prices spiked 17.7% while onions rose 55% in September, compared to 10.4% and 31.4% in August, respectively. At -0.26%, wholesale price rise just about stayed in deflationary mode for the sixth month on the back of double-digit upticks through the same period last year. But that streak may be nearing its end. The government has held retail fuel prices since last May and may even be tempted to cut them ahead of critical elections. But producers, facing the brunt of higher global oil and gas prices, which rose at an eight-month high pace of 15.6% in September, have been raising prices for two months now. Global prices for urea, that India largely imports, are up 20% since March. These will start to feed into retail prices soon so it is not time to celebrate cooling inflation yet.