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Informist, Tuesday, Oct. 8, 2024

 

By Shubham Rana

 

NEW DELHI - India’s headline CPI inflation rate likely rose above the Reserve Bank of India’s medium-term target of 4% in September, as per an Informist poll. According to the median of estimates of 17 economists, headline inflation is seen rising to 5.1% in September from 3.65% in August, driven by an unfavourable base, economists said.

 

Inflation had fallen to 3.60% in July, coming in below 4?ter a gap of nearly five years and edged up marginally to 3.65% in August. But it is expected to have risen sharply last month with RBI staff warning in their monthly State of the Economy article on Sept. 20 that an unfavourable base may "haunt" the September inflation number. In fact, the base effect is so strong that even if the general index of the CPI remains unchanged in September for the third consecutive month, inflation will still rise to 4.8%.

 

Headline inflation was 5.02% in September last year. The National Statistical Office is scheduled to release CPI inflation data for September at 1730 IST on Monday.

 

MIXED CPI INTERNALS

Like headline inflation, food inflation is also expected to be higher in September from 5.7% in August because of the statistical effect of a low base. However, on a sequential basis, food price pressures may have remained subdued. According to data from the Department of Consumer Affairs, onion prices rose 13.6% on month in September, while those of tomato fell 8.8%. Vegetables apart, prices of edible oils and wheat rose sequentially, while those of most pulses were lower compared to August.

 

"Momentum seems broadly contained, and with the kharif harvest likely to hit the markets in the coming weeks, increased supply of non-perishables may bring down elevated food inflation from Oct-Dec," Barclays economists, who see food and beverage inflation picking up to 7.3% in September from 5.30% in August, said in a note. Teresa John, economist at Nirmal Bang Institutional Equities, sees it a tad lower at 7.2%.

 

Core inflation, or inflation excluding food and fuel, also likely rose in September, although only marginally to 3.5-3.6% from 3.4% in August. Economists said this increase may have been driven by higher gold prices.

 

After hitting a record low of 3.1% in June, higher mobile tariffs have helped push up core inflation somewhat, with the Monetary Policy Committee noting in its August statement that there are indications of core inflation "bottoming out". Economists see this narrow gauge of inflation rising in the near term on expectations of a revival in rural consumption along with the ongoing festival-related demand.

 

POLICY IMPLICATIONS

If September CPI inflation does come in at 5.1%, the average for Jul-Sept would be 4.1%, 30 basis points lower than the RBI’s current forecast of 4.4%. However, this is unlikely to prompt the MPC—whose decision will be announced at 1000 IST on Wednesday--into lowering interest rates just yet.

 

According to an Informist poll of 30 economists, treasury officials, and fund managers, all but one think the rate-setting panel will leave the repo rate unchanged at 6.50% this week for the 10th meeting in a row. RBI Governor Shaktikanta Das has said on multiple occasions in recent times that the central bank will look through base-effect driven inflation numbers and will instead look to align headline inflation with the medium-term target of 4% on a durable basis.

 

The central bank expects inflation to rise to 4.7% in Oct-Dec and average 4.3% in Jan-Mar. The most forward-looking forecast pegs inflation in the first quarter of 2025-26 (Apr-Mar) at 4.4%. These numbers may be revised on Wednesday, economists said.

 

The following is a summary of the poll on CPI inflation in September:

 

Range of expectations: 4.0-5.4%

Mean: 5.0%

Median: 5.1%

Mode: 5.2%

 

ORGANISATION	CPI INFLATION ESTIMATE
Acuite Ratings and Research	4.0%
ICRA	4.7%
India Ratings and Research	4.9%
Barclays	5.0%
Nirmal Bang Institutional Equities	5.0%
CareEdge Ratings	5.04%
STCI Primary Dealer	5.05%
Bank of Baroda	5.1%
Sunidhi Securities	5.11%
HDFC Bank	5.14%
YES Bank	5.17%
IDFC FIRST Bank	5.2%
Nomura	5.2%
Standard Chartered	5.2%
QuantEco Research	5.27%
Kotak Mahindra Bank	5.3%
Union Bank of India	5.4%

 

End

 

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Edited by Vandana Hingorani

 

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