India Inflation Accelerates to Highest Level Since CPI Revamp

what happened

India’s consumer prices rose 5.54% in September from a year earlier, the fastest increase since the government revised its CPI series in January, Dow Jones Newswires reported. The reading followed a revised 4.83% rise in August and matched the 5.5% increase expected by economists surveyed by The Wall Street Journal. Inflation has advanced every month since January.

Food inflation accelerated to 7.74% from a revised 5.97% in August. The data were the first major economic release since the Reserve Bank of India raised interest rates last week for the first time in more than three years. The central bank ruled out near-term rate cuts and lifted its annual inflation forecast to 5.2% from 5.0%, while continuing to expect strong growth.

Disruptions to oil shipments through the Strait of Hormuz have increased energy costs. Higher crude prices could expand India’s import bill, while a weaker rupee raises the local cost of dollar-priced goods. ING economists said the monetary-policy outlook will depend on whether price pressures are spreading more broadly. Sok Yin Yong, an Asia fixed-income analyst at Julius Baer, said an intensifying El Nino could hurt agricultural output and push food prices higher. A strong U.S. dollar, narrower U.S.-India yield differentials and persistent foreign portfolio outflows add to the risks for the net oil importer.

why it matters

The broadening inflation pressure reinforces the RBI’s cautious stance on interest rates. For markets, the data matter for expectations around Indian yields and the rupee, while elevated oil prices increase pressure on the country’s import costs.

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