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India Inflation Soars to 5.54%, Rate Hike Looms
13 Oct
Summary
- India's retail inflation reached 5.54% in September, highest since January.
- Food prices significantly increased, with onions alone surging 108.1%.
- Economists predict another rate hike due to persistent inflation.
India's retail inflation accelerated to 5.54% year-on-year in September, the highest level recorded since January. This figure surpasses the Reserve Bank of India's (RBI) mandated 4% target, which has a tolerance band of plus or minus 2 percentage points. Inflation has now remained above this target for four consecutive months, signaling persistent price pressures.
The primary driver behind this increase was a significant rise in food prices. Specifically, onion prices saw a dramatic surge of 108.1% year-on-year in September. Other food items like ginger, garlic, and milk also contributed to the higher food inflation, which rose to 7.7% from 6% in August.
Economists suggest that the current inflation trajectory makes another interest rate hike by the RBI highly probable in the coming months. Some foresee inflation approaching 6% and expect a 25-basis point increase at the next policy review. This follows a recent 25-basis point hike by the Monetary Policy Committee, raising the policy rate to 5.5%.
Uneven rainfall threatening winter crop sowing and elevated crude oil prices are expected to keep food prices firm. Rural inflation saw a sharper increase, reaching 6.1% in September compared to 5.2% in August, with rural food inflation also exceeding urban figures. Among states, Tamil Nadu reported the highest inflation at 6.8%.
