- Retail inflation below economists' estimates, within RBI comfort zone
- Higher food, fuel rates, rupee weakness drive rate of price increases
- Factory activity growth slows down to 4.3%
Consumer inflation stood at 3.77 per cent in September, as against 3.69 per cent in the previous month, the government said on Friday. The pickup in inflation was driven by higher prices of food and fuel along with prevailing weakness in the rupee. The retail inflation figure was lower than economists' estimates. Analysts polled by news agency Reuters had forecast September's annual increase in the consumer price index at 4.0 per cent. Friday's data showed retail inflation - determined by the Consumer Price Index (CPI) - was within the Reserve Bank of India's (RBI) medium-term target of 4 per cent.
The Reserve Bank of India (RBI) primarily tracks consumer inflation data while formulating the monetary policy. The central bank had last week maintained a status quo on key lending rates, surprising many market watchers who had anticipated a third consecutive hike, but ruled out any reduction going forward.
Consumer inflation had stood at a 10-month low of 3.69 per cent in August. That was the first in 10 months in which retail inflation came below the RBI's medium-term target, triggering hopes of a rate hike in the October policy.
Thursday's data refueled hopes of a reduction in key lending rates by the central bank.
"The rise in crude oil prices, the sharp weakening of the rupee, and the revision in MSPs (minimum support prices) are likely to push up the headline inflation above 4 per cent in the ongoing quarter. These risks, combined with the change in stance...to calibrated tightening suggest a likely rate hike in the December 2018 policy review," said Aditi Nayar, principal economist at credit ratings agency ICRA.
Food inflation quickened to 0.51 per cent, as against 0.29 per cent in August. Food prices make up nearly half of the Consumer Price Index.
"The story on food has been very much comfortable this year. So much so that it could help mitigate a lot of pain because of the rise in crude prices and a falling rupee...Amid mixed set of indicators, we would keep a close watch on inflation expectations to second-guess the next move on rates from the RBI," said Tushar Arora, senior economist, HDFC Bank.
The central bank is due to conduct its next policy review in December.
Separate data on Friday showed factory activity growth - determined by the Index of Industrial Production (IIP) - stood at 4.3 per cent in August, slowing down from 6.6 per cent in the previous month.
(With agency inputs)