India’s Inflation at Nine-Month High Keeps RBI on Guard

India’s inflation accelerated at a faster pace than expected in September, justifying the central bank’s caution as calls grow to cut interest rates.

The consumer price index rose 5.49% in September from a year earlier, the fastest pace in nine months, data from the Statistics Ministry showed Monday. That compares with a reading of 3.65% in August and a 5.1% median forecast in a Bloomberg survey of economists. 

Reserve Bank of India last week predicted inflation would accelerate in September, largely due to statistical reasons, as it left its benchmark interest rate unchanged at 6.5%. It also eased its policy stance, opening the door to an interest rate cut in coming months. However, Governor Shaktikanta Das has repeatedly said he wants to bring inflation down to the 4% target level on a durable basis before he considers easing.

Remaining on the cautious side

“The higher than expected September inflation further strengthens the case that RBI will need to remain on the cautious side,” said Upasna Bharadwaj, an economist at Kotak Mahindra Bank Ltd., predicting inflation may remain above 5% in the next reading. “The upside surprise to inflation does prompt us to delay our rate cut call into 2025.”

Food prices, which make up about half of the consumer price basket, climbed 9.24% in September from a year earlier, after rising 5.66% in August. Vegetable costs surged 36% in September from a year ago. 

Excluding the volatile food and fuel prices, the core measure of inflation accelerated slightly to 3.56% from 3.44%, according to calculations from Bloomberg Economics.

There are signs that inflation may moderate in the coming months due to above-normal rains. India recorded its best monsoon season in four years, setting the stage for a bumper harvest of crops such as rice, and boosting economic prospects for rural areas.

Housing prices inched higher to 2.78% from a year earlier, up from 2.66% in August. Clothing and footwear costs were largely unchanged at 2.7%.

“Inflation uncertainties continue to persist in the near-term, particularly with the recent rise in commodity prices like vegetable oils,” said Sakshi Gupta, senior economist at HDFC Bank Ltd. “The chances of a December rate cut at this stage remain low and are likely to hinge on how commodity price pressures evolve.”