Indian headline inflation slows down further in September on fall in food prices

Indian consumer price inflation comes in below expectations in September. On a year-on-year basis, the headline CPI came in at 3.77 percent, as compared with the market projection of 4.02 percent. The weaker print was mainly because of an unexpected decline in food prices. Core inflation also slowed in the month.

On a sequential basis, the consumer price inflation eased to 0.07 percent in the month, as compared with a 0.43 percent rise in August. On a year-on-year basis, CPI inflation accelerated a bit to 3.77 percent year-on-year in September, as compared with 3.69 percent year-on-year in August. The headline inflation also came in below the RBI’s imputed September estimate of 4 percent. Food prices dropped 0.85 percent sequentially. Out of the 12 major subcomponents of food CPI, 10 decelerated in September.

On a year-on-year basis, core inflation softened for second consecutive month to 5.81 percent, a five-month low. The sequential rise in core rate came in at 0.54 percent sequentially in September, widely unchanged from that in August. Among the major components of core CPI, housing costs, education and health care services eased in September. Meanwhile, transportation costs rose, tracking international oil prices.

In the meantime, the effect of the government’s decision earlier this month of cut retail fuel prices by INR 2.50/litre is likely to be restricted at 7-8 basis points on the headline CPI, going forward, stated ANZ in a research report.

“Nonetheless, based on the inflation evolution in FY19 so far, we are lowering our CPI inflation forecast to 4.6 percent from 5.0 percent earlier. The softer-than-expected inflation should allow the RBI to keep rates unchanged in 2018”, added ANZ.