In September, India experienced a notable drop in retail inflation, marking a significant shift from the peak levels seen 15 months earlier. This decline, attributed largely to softer vegetable prices, brought the Consumer Price Index (CPI) to a three-month low. Despite this decrease, inflation remained above the 4% target set by the central bank, hindering potential rate adjustments.
Factors Contributing to the Decline
- Softening vegetable prices played a crucial role in driving down inflation.
- In August and the previous months, high vegetable prices had fueled inflation.
- The government even took measures such as banning rice exports and increasing duties on onions in response to rising prices.
- Food inflation, a significant component of the consumer price basket, also saw a decrease.
- In September, food inflation stood at 6.56%, down from 9.94% in August.
Cereals and Edible Oils
Inflation in cereals and edible oils eased in September, contributing to the overall decrease in inflation.
Cereal inflation dropped from 11.85% in August to 10.95% in September.
- The government’s measures, such as the ban on rice exports and the adjustment of duties on essential commodities, have had an impact on inflation.
Components Maintaining Inflation
Despite the overall decrease, certain components continued to experience price increases, including:
- Cereals: Cereals saw an 11% increase in prices.
- Pulses: Pulses witnessed a 16% rise in prices.
- Spices: Prices of spices increased by 23%.
Economic Expert Insight
- Economists have provided insights into the situation.
- Anitha Rangan, an economist at Equirus, pointed out key contributing factors to the inflation reduction. She noted that the decrease was driven by fuel and light (due to government action on LPG prices), as well as the significant drop in vegetable prices.
- Edible oil prices also played a role in the decline. On the flip side, cereals, pulses, and spices continued to see price increases.
- The outlook for food inflation appears grim due to factors such as an uneven monsoon and reports from several states indicating the possibility of a sub-par kharif crop.
- Achieving the target of 4% inflation remains a challenge in the near future, even though the rate has now dropped to 5%.
- Despite the significant reduction in inflation, the Reserve Bank of India (RBI) has made it clear that merely achieving an inflation rate below 6% may not be sufficient for easing lending rates.
- In its fourth consecutive policy meeting in September, the central bank decided to keep its key lending rate unchanged.