CPI inflation swells led by food and services

Inflation, as measured by the Consumer Price Index (CPI), printed at 7.4% on-year in September, compared with 7% in August and above the Reserve Bank of India’s (RBI’s) upper tolerance limit for the ninth straight month. The jump was driven by accelerating food inflation and the low base of last year, even as non-food inflation remained sticky. Services inflation also inched up.

Retail inflation surged anew in September, driven by food (cereals and vegetables). Core inflation was sticky and is expected to remain so, as producers pass on input costs to consumers amid demand recovery (especially in contact-based services). Imported inflation continues to be a concern given the depreciation in the rupee and elevated international energy prices amid persisting geopolitical tensions. This was reflected in a sequential pick-up in fuel inflation. We thus maintain our CPI inflation forecast of 6.8% for this fiscal, higher than 5.5% previous year.

Inflation trends in September: Highlights

• CPI inflation rose to 7.4% on-year in September from 7% previous month — it was also higher than 4.35% a year ago
• Food and beverage inflation soared the highest to 8.4% from 7.6%
• Fuel¹ inflation moderated to 10.4% from 10.8%, but rose sequentially
• Core CPI² inflation remained sticky at 6% compared with 5.9%
• Inflation jumped in both rural (7.6% vs 7.2%) and urban (7.3% vs 6.7%) areas

¹ Refers to CPI fuel and light
² CPI excluding food and beverages and fuel and light