India’s retail inflation in September likely to exceed RBI’s 4% target: Reuters poll

India’s retail inflation in September likely exceeded the 4% medium-term target set by the Reserve Bank of India (RBI) for the first time since July, according to a poll conducted by the news agency Reuters.

The expected overshot in inflation is due to the increase in vegetable prices and a lower base from the year-ago period, the report said. Heavy rains in the country decreased the availability and increased prices of essential food items, especially the ones that account for a huge share of the overall household spending, like vegetables and perishable goods.

In July and August, the inflation rates were down due to the higher base figures from the previous year, causing an opposite effect.

Reuters conducted a poll of 48 economists from October 3 to October 9 that predicted the retail inflation rate, as measured by the consumer price index (CPI), jumped to 5.04% in September as compared to 3.65% in August. The predictions ranged from 3.60% to 5.40%.

The data will be released on October 14 at 5:30 pm IST, the report said.

"September's reading will bear the brunt of a persistent spike in vegetable prices, especially tomatoes and onions. Even edible oil prices are witnessing momentum due to an increase in international prices. All these concomitantly might put upside pressure on headline inflation," said Dipanwita Mazumdar, an economist at Bank of Baroda, to Reuters.

"Further, in terms of the statistical base as well, Q3 doesn't have an advantage," she added.

Another poll by Reuters has predicted the average inflation for this quarter to be 4.6% and for this year to be 4.5%, both above the RBI’s target of 4%.

Core inflation, which excludes volatile items like food and energy for the calculation, was expected to grow to 3.5% in September from 3.3% in August, the report added. It said that this increase is partly due to the increase in gold prices and hikes in telecom tariffs.

"We see the persistent weakness in core CPI as a sign of growing economic slack, which is also mirrored in rising discounts on motor vehicles, and recent earnings from (fast moving consumer goods) companies also indicate lack of pricing power," said Rahul Bajoria, head of India and ASEAN economic research at Bank of America.