Retail inflation rose to 7.34 per cent in September, the highest level in 8 months, as food items such as fruits, vegetables became costlier. This will make the way for the Reserve Bank of India to cut the policy rate of debt to speed up economic growth.

According to the data released on Monday by the National Statistics Office (NSO), the consumer price index (CPI) based inflation was 6.69 percent in August this year and 3.99 percent in September 2019. Earlier, inflation in January 2020 was 7.59 percent. As of October 2019, inflation was around 4 percent. 

According to the data, inflation in food items rose to 10.68 percent in September from 9.05 percent in August. Inflation of vegetables increased to 20.73 percent in September from 11.41 percent in the previous month. Similarly, inflation in fruits increased in September compared to August.

According to NSO data, egg inflation rose to 15.47 percent in September, from 10.11 percent in August. ICRA economist Aditi Nair said the rise in retail inflation in September was beyond expectations. “However, high inflation in food items is temporary,” he said. It will show a favorable comparative base effect and decline with the arrival of kharif crops. But the average inflation figure may be higher in 2020-21 and second half of the same financial year.

Retail inflation of meat, fish, pulses and its products also remained high on a monthly basis. However, inflation in cereals and its products and milk and its products remained low. According to government data, inflation in the fuel and light segment based on consumer price index declined to 2.87 percent in September from 3.10 percent a month earlier.

Nair said that although the overall retail inflation figure remains high, the main inflation (inflation for manufactured goods) has remained relatively stable for the last three months and is a relief. With this, the policy rate cut in February 2021 is expected.

The government has given the Reserve Bank a target to keep retail inflation at 2 per cent with a 2 per cent inflation. The central bank mainly considers retail inflation while considering the policy rate. Last week, during the monetary policy review, RBI Governor Shaktikanta Das said that retail inflation is expected to be around the target in the fourth quarter of the current financial year. 

Suman Chaudhary, Chief Analysis Officer, Acute Ratings and Research, said that the inflation data is contrary to market expectations. Food items are expected to soften in the next few months. “Despite clearly favorable monsoon and better agricultural production, supply-related constraints remain … Our concern is about the risk of rising inflation without growth,” he said. RBI has said to maintain a soft stance in the next financial year as well. But the increase in inflation is certainly a cause of concern for policy makers. Price data were collected from 1,114 urban markets and 1,181 rural areas to calculate retail inflation. 

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