India’s retail inflation rose to 7.41 per cent in September from a year ago on higher food and energy costs, the highest since April and is above the upper end of the RBI’s 2-6 per cent tolerance band for each month this year.
Data released by the National Statistical Office showed that consumer price index-based inflation (CPI) rose to 7.41 per cent in September from 7 per cent in August a year ago.
The latest reading will put pressure on the RBI to tighten policy further, even at the expense of the economy, after raising its key repo rate to a three-year high of 5.9 per cent in four increments this year to contain rising prices.
This suggests the central bank will need to act more aggressively and reflect the policy trajectory of major central banks in the West – fighting inflation at any cost, including recession – as RBI governor Shaktikanta Das’ statement last month. Despite that the policy was intended to control inflation while minimizing any impact on economic growth.
Food inflation, which accounts for nearly half of the consumer price index (CPI) basket, rose as prices of essential crops such as wheat, rice and pulses – already straining the household budget further.
In fact, prices of basic commodities like cereals and vegetables, which are the biggest components in the inflation basket, have risen over the past two years due to variable rainfall patterns and supply shocks from Russia’s invasion of Ukraine.
India’s poor and middle class, already suffering economic shocks related to the COVID-19 pandemic, will be particularly hit by the growth as they spend a significant portion of their income on food.
The increase in the prices of food and fuel has caused a huge loss to the household budget.
Further analysis of the data shows that rural inflation remained above urban price pressures for the fourth consecutive month.
Some restrictions have been imposed on the export of basic food items by the Government of India to reduce inflation.
However, consumer prices have resisted the RBI’s maximum tolerance level this year and remain adamant.
A weak rupee has made the RBI’s efforts to control imported inflation difficult. The domestic currency has repeatedly hit new record lows, weakening from around 79 per dollar to more than 82 in a month. The rupee has depreciated more than 10 per cent against the dollar during the year.
Whereas the Indian central bank has spent about $100 billion from its foreign exchange reserves to prevent loss of domestic currency.