Indian headline inflation accelerates in September on higher food inflation

Indian headline inflation accelerated to a 14-month high in September, coming in sharper than consensus expectations on higher food inflation. On a year-on-year basis, the inflation accelerated to 3.99 percent from an upwardly revised print of 3.28 percent in August. On a sequential basis, the headline consumer price inflation came in flat at 0.55 percent.

Food prices rose 4.7 percent year-on-year, accelerating from 2.96 percent in August, led by vegetables. Within the category, the prices of onions, which account for 10 percent of the weight of vegetables in the CPI basket, rose sharply to 66.4 percent year-on-year from 6.4 percent in August. In the meantime, fuel inflation dropped for the third straight month.

Core inflation eased for the second consecutive month. There was a widespread easing throughout all the major components in annual terms, except the “education” and “personal care and effects” categories.

The inflation print comes in fairly close to the mid-point of the RBI’s target range of 4 percent. With this print, inflation has averaged 3.47 percent for the quarter ending September, marginally higher than the RBI’s forecast of 3.4 percent. Nevertheless, the uptick in overall inflation is expected to be short-lived, noted ANZ in a research report. This is due to prompt policy action like banning export of onions; and favourable monsoons, which should help cap the upside to vegetable prices in the near term.

“Therefore, we see little bearing of today’s higher-than-expected inflation print on RBI’s monetary policy action. In fact, softer core inflation underlies the subdued growth momentum in the economy. We continue to expect the central bank to ease the policy repo rate by 25 bps at its December meeting”, added ANZ.