India’s Sept retail inflation quickens to 4.41 pct y/y

The hardening in retail inflation should not come as a surprise due to reversal of favourable base effect from September onwards.

In August, the Index of Industrial Production (IIP) rose to a 3-year high at 6.4% from a provisional 4.2% in the previous month.

In a poll of economists by Reuters, the consensus was for inflation to remain at zero in September, but a few forecast it could edge up and a few see the rate dipping to -0.1%, marking a return to the negative territory hit in April this year when prices fell for the first time in more than 50 years.

Inflation in pulses rose to 29.76 per cent in September.

The manufacturing sector grew 6.9 per cent in August compared to 4.6 per cent in July.

The energy giant reduced its prices by 5 per cent at the end of August.

While the price rise in the food and beverages category nearly doubled from a month earlier to 4.29% in September, inflation in cereals and products was also higher at 1.38%.

In Britain CPI has been held back this year thanks to low oil and commodities prices, and by the strength of the pound, which makes imported goods cheaper. “This points that food supply management of the government is working effectively”, he added.

Low inflation eases pressure on the Bank of England to increase interest rates as it seeks to keep CPI from heading above its 2 per cent target.

To revive growth by spurring lending activities, RBI has so far this year cut rates it charges banks for short-term loans by 125 basis points to 6.75 per cent as inflation started trending down in the past 15 months. “But with RBI shifting its focus to the CPI inflation target of 5 per cent by last quarter of the next financial year and the considerable uncertainty related to monsoon and efficacy of food management in 2015 as well as fiscal and inflationary impact of the upcoming pay revision for government employees, we expect an extended pause for the policy repo rate”, she said.