September Inflation At 3.77% Refuels Expectations Of RBI Rate Hike
Retail inflation rate slightly picked up to 3.77 per cent in September, government data showed on Friday, driven by higher food and fuel prices and a depreciating rupee. Analysts polled by Reuters had forecast September's annual increase in the consumer price index at 4.0 per cent, compared with August's 3.69 per cent. Friday's data showed retail inflation - determined by the Consumer Price Index (CPI) - came within the Reserve Bank of India's (RBI) medium-term target of 4 per cent for a second straight month.
Here's what experts say on the latest inflation data:
Tushar Arora, senior economist, HDFC Bank, New Delhi:
"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."
"Going forward, the hike in minimum support prices (MSPs) is an upside risk to headline inflation. However, given that it will take time to expand the procurement capacity in the country, it is more of a risk for the next year and not FY19."
"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."
Rupa Rege Nitsure, group chief economist, L&T Finance Holdings, Mumbai:
"CPI inflation has started inching up despite a favourable base effect due to food prices and miscellaneous goods and services."
"Urban CPI has already touched 4.31 per cent. Core CPI stays elevated at 5.82 per cent. While a cut in taxes has partly covered up the negative impact of oil price spike, it may not sustain for very long. Given the massive depreciation of the rupee and elevated Crude prices, RBI will have to resort to policy rate signals sooner than later."
Radhika Rao, economist, DBS Bank, Singapore:
"Inflation is in line with our expectations as lower food costs negate the pass-through of higher fuel and transport components. Pulses and commonly-used vegetables slipped on month-on-month terms."
"Sub-target inflation reaffirms the central bank's decision to keep rates on hold last week, prioritising their inflation mandate, rather than getting fixated with the currency direction."
"We hold on to our expectations that policy tightening is in the offing towards late 2018 as base effects pass and inflation tests above the target again, along with a higher core. Global cues are also expected to stay negative, weighing on domestic markets."
Rucha Ranadive, economist, CARE Ratings, Mumbai:
"There has been a marginal increase in food and beverage sector inflation, which has pushed up the CPI, but going forward, we expect that food inflation is likely to moderate, since the kharif output has been good."
"The effect of house rent allowance in the seventh pay commission, which was seen as a concern in pushing up CPI, seems to have moderated."
"Going forward, we expect an upside risk to inflation which is persistent on account of higher crude oil prices globally and the rupee's weakness. In light of this, we expect a rate hike of 25 basis points in FY19."
"Weakness in the rupee is likely to bring in imported inflation, which could push up inflation rates going ahead. We expect CPI of 5 per cent for FY19."
Aditi Nayar, principal economist, Icra Ltd, Gurugram:
"The mild uptick in CPI inflation in September is in line with our expectation of a sub-4 per cent print for that month. However, the rise in crude oil prices, the sharp weakening of the INR, and the revision in MSPs are likely to push up the headline inflation above 4 per cent in the ongoing quarter. These risks, combined with the change in stance from neutral to calibrated tightening, suggest a likely rate hike in the December 2018 policy review. At present, we expect further rate hikes of 25-50 basis points in the remainder of FY2019."
"The uneven distribution of monsoon rainfall may limit the growth in kharif output and rural incomes in the coming months. However, the year-on-year rise in reservoir levels across most regions would support a brisk pace of rabi sowing, once it commences."
"The moderation in core CPI inflation in September was largely led by the base effect-led easing in housing inflation."
A Prasanna, chief economist, ICICI Securities Primary Dealership Ltd, Mumbai:
"September headline inflation has surprised on the downside while core inflation was in line with our expectation. With food inflation continuing to be benign, thanks to perishables and proteins, we see headline staying below 4 per cent till the end of this calendar year."
"Subsequently, we see headline picking up on the back of pressures due to higher fuel costs and rupee depreciation. In any case, core inflation is expected to stay above 5 per cent through our forecast horizon. Accordingly, we continue to expect repo rate hike one more time by 25 basis points in the current financial year."
Anubhuti Sahay, head of economic research, South Asia, Standard Chartered Bank, Mumbai:
"The inflation number is a positive surprise, primarily driven by lower food inflation. While the next 3-5 inflation prints will remain subdued, the bigger question is how will it look 12 months ahead, given higher oil prices and a weaker rupee."
"We expect the monetary policy committee to pre-emptively raise interest rates by a total 50 basis points in the next two meetings as 2019/20 CPI is likely to be above 5 per cent. A 10 per cent fall in the rupee typically adds 30-40 basis points to headline CPI, ceteris paribus over 12 months."
"But given a combination of factors including a still recovering economy, limited increase in truck freight rates and incomplete pass-through of prices to consumers, the impact can come with a lag."
