Surge In Food Prices Drive Retail Inflation To A 9-Month High Of 5.49% in September

Inflation in India experienced an uptick in 2024 in September, raising concerns across industries, consumers, and policymakers.

India’s retail inflation hit a 9-month high of 5.49% in September, exceeding RBI’s 4% target. Inflation, measured by the Consumer Price Index (CPI), is driven by various domestic and global factors. This inflation hike has delayed anticipated interest rate cuts by the RBI, impacting the broader economy.

India's retail inflation accelerated to a 9-month high of 5.49% on an annual basis in September, driven by a persistent rise in vegetable prices and a lower year-ago base. Retail inflation had eased to a 5-year low of 3.65% in the previous month.

The spike in retail prices in September also marks the first time since July that the print has exceeded the Reserve Bank of India's (RBI) 4% medium-term target.

The most significant contributor to the inflation spike in October 2024 has been rising food prices. The food inflation, which accounts for around half of the overall CPI basket, jumped to 9.24 per cent in September from 5.66 per cent in the previous month, the data showed.

This is primarily due to erratic monsoon patterns. While the monsoon season was anticipated to normalise, several regions faced below-average rainfall, affecting the kharif crop. Staples like rice, wheat, pulses, and vegetables saw significant price increases.

The inflation rate for vegetables in particular grew 35.99% in August as against 10.71% in the previous month. Rural inflation quickened to 5.87% as against 4.16% in August, whereas urban inflation accelerated to 5.05% as compared to 3.14% in the previous month.

Given the inflation surge, the RBI has been forced to delay anticipated interest rate cuts. In its October policy meeting, the RBI chose for a status quo in rates at 6.5% for one more time but shifted the stance to 'neutral' from the earlier 'withdrawal of accommodation' signalling the possibility of the first rate cut in the December policy.

Initially, expectations for rate cuts were fueled by the belief that inflationary pressures would ease by the end of the third quarter of 2024. The October inflation reading breaching 4% mark in September has prompted several economists to push back domestic rate cut bets to the first half of 2025 from early December.
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