India's retail inflation picks up in September as food prices soar

NEW DELHI (Reuters) - India’s retail inflation picked up in September to 7.34%, its highest level in eight months, as food prices surged ahead of the festival season, increasing chances of a further delay in a rate cut by the central bank to bolster the shrinking economy.

A vendor weighs vegetable next to an advertisement of Paytm, a digital payments firm, hanging amidst his vegetables at a roadside market in Mumbai, India, April 2, 2019. REUTERS/Francis Mascarenhas/File Photo

September’s annual retail inflation was much higher than the forecast of 6.88% in a Reuters’s poll of economists and the previous month’s 6.69%, government data showed on Monday.

Retail inflation has remained above 4%, the middle-point of the Reserve Bank of India’s (RBI) target of 2-6%, for a year.

Economists said food prices soared due to a pickup in demand ahead of the festival season that runs from October to March, and supply-side disruptions caused by the coronavirus lockdown.

They rose 10.68% in September compared to a rise of 9.05% in the previous month as prices of edible oil, meat and vegetables rose in a range of 13% to 21% from a year before, the data showed.

Sakshi Gupta, senior economist at HDFC Bank, said the surprisingly high inflation print dimmed the outlook for further monetary easing.

“The space for further rate cuts in FY21 now seems to be closing, even perhaps for the February meeting,” she said, adding that the central bank was likely to keep an accommodative stance and to focus on managing the yield curve and liquidity.

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Last week, the RBI left key policy rates unchanged amid fears of elevated inflationary pressure, while retaining an accommodative monetary stance to support an economy that is projected to contract by almost 10% in the current fiscal year.

A central bank survey of households showed that inflation was likely to decline modestly over the next three months.

Core inflation for September stood at 5.7%, according to two analysts approached by Reuters after the data release.

Separately, data released on Monday showed India’s industrial output contracted 8% in August from a year earlier.

Additional reporting by Aftab Ahmed, Nidhi Verma in NEW DELHI, Anuron Kumar Mitra and Chris Thomas in Bengaluru; Editing by Catherine Evans and Gareth Jones