Higher food prices lift retail inflation to 14-month high

Data separately released by the industry department on Monday, however, showed that wholesale price inflation decelerated to a three-year low at 0.33% in September compared with 1.08% a month ago.

India’s retail inflation sharply accelerated in September to a 14-month high at 3.99%, almost touching the central bank’s medium-term target of 4%, as food inflation nearly doubled to 5.1%. The high retail inflation could limit the Reserve Bank of India’s (RBI’s) ability to further cut policy rates.

Inflation for manufactured items stood at -0.42% in September as against 0% a month ago. (PTI)

Data separately released by the industry department on Monday, however, showed that wholesale price inflation decelerated to a three-year low at 0.33% in September compared with 1.08% a month ago, as prices of manufactured items entered the deflationary territory, signalling the lack of pricing power of producers in the current economic downturn.

Inflation for manufactured items stood at -0.42% in September as against 0% a month ago. The WPI inflation rate declined in September despite onion prices rising 122% from a year ago. The government has banned exports of onions and put stock limits on traders to cool prices.

The spike in retail inflation is a blip and should correct going ahead, said Crisil Ltd’s chief economist Dharmakirti Joshi. “Overall, food inflation could remain high this year even as core inflation declines. That should improve terms of trade for the farmers,” he said.

The question is whether food prices will continue to rise as onions and tomatoes continue to cause concern, said Madan Sabnavis, chief economist at Care Ratings.

“Monetary policy has to be cautious and while it had decidedly targeted growth in the earlier policies, it has to consider CPI inflation over which rates have no control...” he said.