The inflation rate based on the Consumer Price Index (CPI) fell to a five-month low of 4.35% in September, from 5.59% the month before, as food prices rose to a much lower rate of 0.68%, compared to 3.11% over this period, official data from the National Statistics Office revealed on Tuesday.
This justified the accommodative stance of the Reserve Bank of India’s Monetary Policy Committee (MPC).
Part of the fall in the inflation rate is also explained by the increase in the base effect to 7.27% in September 2020, against 6.69% the previous month.
However, the fuel inflation rate reached 13.63 percent in September, down from 12.94 percent the month before.
Within food products, vegetable prices fell at a much faster rate of 22.47 percent in September, compared to 11.68 percent in the previous month.
CARE Ratings warned in a note that vegetable prices have started to rise sharply lately, which is not covered here due to the base effect.
Oils and fats saw the inflation rate drop to 34.19 percent, from 33 percent during this period.
In addition, prices for household goods and services, which include education, personal care and effects, recreation and entertainment, health, and transport and communications, edged up to 5.92 percent, from 7. 78 percent during this period.
CARE Ratings said high household goods inflation could be a factor as festival demand picks up, particularly from October to December.
In household services, pent-up demand led to an increase in the inflation rate in recreation and entertainment to 7.58 percent, from 6.48 percent.
Core inflation, which excludes food and fuel prices, remained high at 5.8% in September.
In its policy review last week, the MPC opted for a status quo on the policy rate and maintained its accommodative stance. It reduced its projections for the retail price inflation rate to 5.3% for 2021-2022 (FY22), from its earlier forecast of 5.7%. The inflation rate for the first half of the year stood at 5.33 percent, which means it should drop a little more if the RBI’s projections are to come true.
The MPC correctly projected the rate to be 5.1 percent in the second quarter of FY22. It stood at 5.08 percent in the quarter.
Going forward, the MPC predicted that the rate would drop to 4.5% in the third quarter and then rise to 5.8% in the fourth quarter of the year.
However, global commodity prices, including oil prices, could spoil the party. Monetary policy has little effect on world commodity prices.
Rahul Bajoria, Chief Economist for India at Barclays, said: “Overall, we expect high global commodity prices to continue to put upward pressure on the import basket. India, which in turn will gradually trickle down to CPI inflation in the coming months.
Rajani Sinha, chief economist at Knight Frank India, said high core and fuel inflation remains a cause for concern. “With global economic growth gaining momentum, there could be further upward pressure on commodity prices and the central bank would be wary. However, there is unlikely to be any change in this. key rates this year, “she said.
First published: Tue 12 October 2021. 19:39 IST