Rising food prices pushed India’s Sept CPI up to 4.4pc

New Delhi, October 12

A rise in some food prices lifted Indian retail inflation in September after it had hit a record low in the previous month, but inflation is expected to remain low thanks to falling global commodity prices.

Poor monsoon rains have led to drought in some parts of the country for second straight year, forcing

up prices for popular staples such as pulses and vegetables.

Retail inflation, which the Reserve Bank of India (RBI) tracks to set interest rates, rose to 4.41 per cent in September from a revised 3.74 per cent in August, data released by the Ministry of Statistics showed today.

Retail food inflation for September came in at 3.88 per cent, higher than a provisional 2.20 per cent in August. Economists had forecast consumer inflation to rise to 4.3 per cent last month, and many expect it to remain below RBI’s forecast of 5.8 per cent by January 2016.

“Room for further rate cuts will depend on comfort of achieving five per cent target in January to March of 2017, and also developments in the global financial markets,” said Indranil Pan, chief economist at IDFC Ltd.

The Governor of the RBI, Raghuram Rajan, cut the policy interest rate last month to a four-and-a-half year low of 6.75 per cent to support an economic recovery that is not strong enough to create jobs for India’s burgeoning workforce.

RBI cut its growth forecast to 7.4 per cent for the fiscal year to end March, well below the government’s initial target of 8.1 to 8.5 per cent, but still faster than China.

Analysts say a fall in local fuel prices and the government’s promise to contain fiscal deficit at 3.6 per cent of GDP this fiscal year could dampen demand-led inflationary expectations in Asia’s third largest economy.

“Short-term pre-emptive measures and an increase in imported supplies are expected to rein in any trickle-down impact in the weeks ahead,” DBS bank said in a research note today.

India’s economy continues to face headwinds, particularly on the external front including risks of a long-awaited rate hike by the US Federal Reserve, but low inflation suggests that the central bank has scope to cut interest rates early next year.

Last week, the International Monetary Fund (IMF) cut its global growth forecast to 3.1 per cent for 2015, citing weak commodity prices and a slowdown in China.

The IMF expects the Federal Reserve to start raising rates this year, although it expects the central bank to stay its hand until it sees signs of inflation rising toward its two per cent target.