Inflation in India is likely to reach a five-month high in September due to food prices

Inflation in India is likely to reach a five-month high in September due to food prices

By Arch Tuscher Mogri

BENGALURU (Reuters) – India’s retail inflation accelerated to a five-month high of 7.30 percent in September due to higher food prices and remained well above the Reserve Bank of India’s higher tolerance range for a ninth month, a Reuters poll showed.

Prices of everyday consumer items such as grains and vegetables that make up the largest category in the inflation basket have risen over the past two years, driven by erratic rainfall and supply shocks from the Russian invasion of Ukraine.

India’s poor and middle classes are already suffering from the economic shocks caused by the COVID-19 pandemic, and will be hit hardest by the increases as they spend a large portion of income on food.

The October 3-7 Reuters poll of 47 economists showed that inflation – as measured by the Consumer Price Index – rose to 7.30% annually in September from 7.00% the previous month. If it materializes, this will be the highest level since May 2022.

Expectations for the data, due at 1200 GMT on October 12, ranged between 6.60% and 7.80%. About 91% of economists, 43 out of 47, expected inflation to be 7.00% or higher, indicating that the bias is higher prices.

โ€œThere is a strong pressure from food going on right now,โ€ said Dharmakirti Joshi, chief economist at Cresil.

The Indian government has taken measures to cool down domestic prices, including some restrictions on the export of rice to ease inflation. But consumer prices remained challenging and remained above the maximum tolerance of the Reserve Bank of India this year.

Nor does a weak currency help. A separate Reuters poll of currency market analysts showed that the Indian rupee hit a new low of 82.32/$ on Friday and was expected to remain under pressure for the next six months.

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This is likely to put pressure on the Reserve Bank of India, which has raised its key repo rate by 190 basis points in four steps this year, to ramp up rate hikes.

โ€œFaced with a more hostile global backdrop and a more stable inflation trajectory at home, we now expect a final rate of 6.75% โ€“ previously 6.25% โ€“ in this cycle,โ€ said Sajid Chinoy, chief India economist at JPMorgan.

โ€œTo the extent the rupee weakens, there will be transit effects on the CPI trajectory.โ€

(This story was corrected on October 10 to fix the quote from Dharmakirti Joshi to remove the word “unprecedented”)

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