India inflation jumps to 5.54% in Sept, strengthening case for further rate hikes

NEW DELHI: India’s retail inflation jumped to 5.54% in September, data showed on Monday, nearing the upper end of the central bank’s 2%-6% tolerance band and strengthening the case for further rate hikes as the Iran war and weak monsoon-led price pressures ripple through the economy.

The September print was marginally higher than economists’ 5.4% forecast in a Reuters poll, marking the fourth consecutive month inflation has remained above the Reserve Bank of India’s 4% medium-term target and its highest level this year under the current series.

It stood at 4.83% in August. Inflation in September is higher partly due to the base effects as last year’s lower price levels make this year’s inflation appear higher.

The RBI joined its global peers last week to raise its benchmark repo rate by 25 basis points to 5.5% for the first time in nearly four years, citing evidence of elevated inflation expectations and broadening of price pressure.

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The central bank last raised rates in February 2023.

RBI Governor Sanjay Malhotra said after the policy decision that headline CPI inflation is expected to average nearly 5.8% over the next three quarters, prompting the central bank to raise its inflation forecast to 5.2% for fiscal 2027 from 5% earlier.

He also warned that a weak monsoon and strong El Nino conditions pose risks to agriculture and rural demand, although ample foodgrain stocks and government measures are expected to cushion the impact.

Brent crude futures have stayed above $100 a barrel, while a deficient monsoon has raised concerns over food supplies. India’s food inflation rose to 7.74% in September from 5.97% in August, driven by higher prices of staples such as onion, ginger and garlic.

Transport inflation climbed 5.01% in September, as against 4.6% a month ago.