Key facts
- India's annual retail inflation rose to 5.54% in September.
- This is an increase from 4.83% in August.
- The September inflation figure exceeded the Reuters poll projection of 5.4%.
- Inflation has remained above the Reserve Bank of India's 4% target for four consecutive months.
- Price pressures are being influenced by the Iran war and a weak monsoon.
India's retail inflation rate surged to 5.54% in September, according to data released on Monday, marking an increase from 4.83% in August and exceeding economists' forecasts of 5.4%. This figure nears the upper limit of the Reserve Bank of India's (RBI) 2%-6% tolerance band and represents the fourth consecutive month inflation has remained above the central bank's 4% medium-term target.
Analysts suggest that the rising price pressures, exacerbated by the Iran war and a weak monsoon, strengthen the case for further interest rate hikes by the RBI. Alexandra Hermann Prasad, lead economist at Oxford Economics, stated that the print reinforces the need for rate hikes, noting the RBI's willingness to adjust policy amid rising inflation risks, even with soft underlying demand. She anticipates two further 25 basis point hikes in December and February.
Radhika Rao, senior economist at DBS Bank, pointed to quickening food inflation driven by sub-segments, below-normal rainfall, imported price pressures, and fuel costs. She believes the core inflation aligns with the central bank's view that price risks are increasing, and expects the RBI to keep the possibility of another rate hike in December open.
Garima Kapoor, deputy head of research and economist at Elara Securities (India), noted that CPI inflation was in line with expectations due to higher food and energy prices. She anticipates the RBI will continue with rate hikes amid sticky commodity prices and rising global yields, forecasting two more hikes this financial year.