Inflation eases to 5% after 2-month spike

India's economy seems to be returning to a high-growth low-inflation sweet spot after a two-month scare. Both inflation and industrial production numbers for the month of September and August - they were released by the National Statistical Office (NSO) on Thursday-positively surprised analysts.

- Roshan Kishore

To be sure, whether or not the economy will find this sweet spot will depend on an uneven monsoon's impact on non-perishable food production at home, and the trajectory of crude oil prices in the aftermath of Hamas' surprise assault on Israel last weekend.

India's benchmark inflation rate, as measured by the Consumer Price Index (CPI) stood at 5% in September 2023, significantly lower than the 6.8% and 7.4% readings in the months of August and July. The September inflation print is 38 basis points one basis point is one hundredth of a percentage point - lower than what was projected by a Bloomberg poll of economists.

The September CPI number also means that the September quarter CPI number is now 6.4%, exactly what RBI's Monetary Policy Committee said it would be in its October resolution released earlier this month. To be sure, RBI had revised its September quarter inflation forecast by 1.2 percentage points between its June and October resolutions.

RBI's annual inflation forecast for 2023-24 now stands at 5.4%.

The driving factor behind a moderation in headline inflation number is a sharp correction in vegetable inflation, which has fallen from 37.4% in July to just 3.4% in September. This has brought down food inflation from 10.6% in July to 6.3% in September.

That edible oil prices have continued to contract on an annual basis for the eighth consecutive month has also helped the cause.

Parts of the food basket continue to be a cause for concern.