CPI Inflation Eases To 5.02% In September Due To Significant Drop In Food Prices

India's consumer price index (CPI) inflation has eased once gain higher than markets expectations in September to 5.02% compared to 6.83% print in August 2023. The latest inflation rate is well below the market consensus of 5.5%. That being said, the country's retail inflaton has dropped below RBI's tolerance limit of 6% for the first time in three months.

The September data was broadly owing to a sharp decline in food inflation which came in at 6.56% in September 2023 versus 9.94% in the previous month.

RBI's medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of plus or minus 2 per cent, while supporting growth.

In October policy, RBI said, the near-term inflation outlook is expected to improve on the back of vegetable price correction and the recent reduction in LPG prices.

RBI added the future trajectory will be conditioned by several factors like lower area sown under pulses, dip in reservoir levels, El Niño conditions and volatile global energy and food prices. According to the Reserve Bank's enterprise surveys, manufacturing firms expect higher input cost pressures but marginally lower growth in selling prices in Q3 compared to the previous quarter. Services and infrastructure firms expect a moderation in the growth of input costs and selling prices.

Taking into account these factors, RBI predicts CPI inflation at 5.4% for FY24 --- with Q2 inflation at 6.4%, Q3 rate at 5.6%, and Q4 estimated at 5.2%. RBI had factored CPI to be around 5.2% in the first quarter of FY25.