India’s retail inflation surged to a 5-month high in September, surpassing RBI’s upper margin of 6 per cent for the ninth consecutive time.
- Retail inflation, measured using the Consumer Price Index (CPI), has increased from 7 per cent in August to 7.4 per cent in September this year.
- CPI inflation in the January-March quarter averaged 6.3 per cent, in April-June it was 7.3 per cent and now, in July-September it is 7 per cent.
- With this, the CPI inflation has completed three full years above the central bank’s medium-term target of 4 per cent and outside the mandated 2 to 6 per cent for three consecutive quarters.
- These figures signify that the RBI has failed to achieve its targets under the flexible inflation targeting framework.
- Under the RBI Act, 1934, the Central Government mandated the Reserve Bank to maintain the CPI inflation at 4 per cent, with a margin of 2 per cent on either side of a five-year period concluding in March 2026.
- According to law, the central bank is required to submit a report to the Indian Government, providing reasons behind the failure, solutions that are to be taken and the time period within which the inflation target will be reached.
- The surge in retail inflation is expected to force the RBI to increase interest rates further. The central bank increased its key repo rate by 190 basis points since May this year. However, this has failed to control the surging inflation – a phenomenon commonly seen across the global economy.
- The retail inflation in September 2022 is caused by the increase in food prices. The food inflation spiked from 7.62 per cent in August to 8.6 per cent – the highest in 22 months.
- The food inflation was driven by vegetables, which witnessed a 2.6 per cent month-on-month inflation. Cereals (2%) and pulses (1.1%) also witnessed a strong increase.
- The price of cereals has been exacerbated by the lower acreage under rice in the present Kharif season, the onset of festive season demand, and the extension of PMGKY until December.