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BENGALURU India's retail inflation accelerated in September to a five-month high of 7.41% year-on-year, driven by surging food prices, raising fears of further rate hikes when the central bank meets for its next policy review in December.

Annual retail inflation in September was higher than the 7.3% forecast in a Reuters poll of economists, and above 7% the previous month, data released by the National Statistics Office on Wednesday showed.

The latest data shows retail inflation remaining above the Reserve Bank of India's target for three quarters, implying it will have to report to the government why it failed to meet the target, and what actions it will take.

COMMENTARY

UPASNA BHARDWAJ, CHIEF ECONOMIST, KOTAK MAHINDRA BANK, MUMBAI

"Although broadly in line with expectations, the CPI data continues to remain elevated. The surge in prices of cereals, vegetables and pulses is continuing into October as well. The unseasonal rains are further expected to keep the food prices volatile. We expect the RBI to hike repo rate by 35-50 bps in December, with the next move being more data dependent."

SAUGATA BHATTACHARYA, CHIEF ECONOMIST, AXIS BANK, MUMBAI

"CPI inflation printed close to our and Street forecasts. However, price momentum still remains broad-based. This will require continued monetary policy tightening, but the magnitude will depend on balancing growth and exchange rate considerations.

"The lower than expected IIP growth corroborates the narrative of a volume based slowdown, indicating stress in lower income households. Coupled with an expected exports slowing, the overall impact on growth might be more than our current expectation."

PRITHVIRAJ SRINIVAS, CHIEF ECONOMIST, AXIS CAPITAL, MUMBAI

"We maintain that even if inflation print comes off, inflation risk is growing in the form of wide external trade deficits. Policy makers will have to take action to restrain import intensive domestic demand through taxes and trade policy. Both monetary and fiscal policy have to turn restrictive."

ADITI NAYAR, CHIEF ECONOMIST, ICRA, GURGAON

"Another rate hike is certain in the December 2022 MPC review, after the uncomfortable inflation print of 7.4% for September 2022. The quantum of the next rate hike will be determined by how much the inflation print recedes in October 2022, as well as the strength of the GDP growth for Q2 FY23.

"The excessive rainfall in early October 2022 may adversely impact the kharif harvest and delay rabi sowing, thereby posing a material upside risk to the food inflation outlook. However, the impact of the same on the y-o-y food inflation prints is likely to be partly mollified by the high base that lies ahead for H2 FY23."

SUVODEEP RAKSHIT, SENIOR ECONOMIST, KOTAK INSTITUTIONAL EQUITIES, MUMBAI

"CPI inflation in September at 7.41% was in line with our expectations at 7.35%. Food items continue to see an upside in price momentum, especially in cereals and vegetables. Lower acreage and unseasonal rains will continue to impart upside to food prices.

"Core inflation at 6.26% is in line with the trend of past 4-5 months and will likely be around this handle over the rest of FY23.

"We believe that the September inflation print should keep the RBI on course for a 35 bps hike in December, with inflation remaining above 6% at least till February 2023, and reduce gradually towards the 4.5%-5.5% range in FY24.

"External sector concerns as well as uncertainty on energy prices will keep the RBI's policy contingent on incremental data and events."

RADHIKA RAO, SENIOR ECONOMIST, DBS BANK, SINGAPORE

"September's elevated reading marks three consecutive quarters of above 6% inflation, resulting in a miss in the inflation mandate, and will require the central bank to explain this miss.

"Besides base effects, the pre-harvest seasonal lift in food categories added to the headline, compounded by erratic rainfall, pushing up perishables and cereals, while core pressures stayed sticky.

"Policy is likely to maintain a hawkish bent on above-target inflation and a weaker currency, which complicates the central bank's inflation fight."

GARIMA KAPOOR, ECONOMIST, INSTITUTIONAL EQUITIES, ELARA CAPITAL, MUMBAI

"Going forward, we expect CPI to average closer to 6% only by Q4 FY23 and expect FY23 CPI inflation at 6.5%, with upside bias.

"We expect the Monetary Policy Committee (MPC) to hike policy repo rate by another 40-50 bps this financial year. Should the CPI inflation fail to moderate to a level close to 6% in Q4FY23, room for further rate hikes could open."

KUNAL KUNDU, INDIA ECONOMIST, SOCIETE GENERALE, BENGALURU

"At 7.4% Y/Y, CPI was higher than our and market expectation. The surge, not surprisingly, was led by food prices.

"From the household's point of view, with food accounting for nearly 40% of the total consumption basket, the impact of rising food prices is much more severe on their spending power, especially of discretionaries, than is the case where food accounts for relatively lower share.

"For the central bank, the bigger challenge though is the firming up of core inflation. We expect the RBI to effect an hike of an additional 60 bps during FY23 with the terminal policy rate likely touching 6.5%."