Consumer Inflation Soars To 7.34% In September, Worst Since January

Edited by Sandeep Singh

12 Oct 2020, 05:33 PM IST

Consumer inflation remained above the RBI's medium-term goal for past few months

Determined by the Consumer Price Index (CPI), retail inflation was much higher compared to economists' estimates. According to a poll of economists by news agency Reuters, consumer prices were expected to rise 6.88 per cent last month from a year ago.
The consumer inflation reading of September is in line with the recent pause in key policy rates by the central bank.
Food inflation - or the rate of rise in food prices - came in at 10.68 per cent last month, as against 9.05 per cent in August, the data showed.
Persistent high prices have hurt the recession-stricken economy, which contracted a record 23.9 per cent in April-June despite the RBI lowering its key repo rate by a cumulative 115 basis points since the pandemic started.
Although the government has eased a range of lockdown restrictions to support the economy, supply chain disruptions have shown little sign of abating as COVID-19 continues to spread rapidly in the country.
"Unless the inflation doesn't fall below the higher band of 6 per cent, we don't expect the RBI to cut rates... But eventually, as the supply shocks dissipate as the economy continues to unlock, we may see inflation falling back to the tolerance band," said Rahul Gupta, head of research-currency, Emkay Global Financial Services.
The central bank - which typically tracks consumer inflation primarily while formulating its monetary policy - left the key rates unchanged in a scheduled review last week, promising to continue with its "accommodative" stance, which rules out any hikes for the time being.
In its October 9 policy statement, the RBI had said inflation is likely to remain elevated in September, and ease in the third (October-December) and fourth (January-March) quarters of current financial year.
Separate data on Monday showed factory production - measured by the Index Of Industrial Production (IIP) - dropped 8 per cent in August, mainly due to weak activity in manufacturing, mining and power generation.
The RBI has projected a contraction of 9.5 per cent for the economy in the current financial year, which ends in March 2021, with a faster and stronger rebound "eminently feasible" if the current momentum of upturn gains ground.