Inflation scales 10-month peak, all eyes on RBI

Wholesale inflation unexpectedly scaled a ten-month peak of 7.81% in September on a spurt in food and fuel prices following the first increase in diesel rates in 15 months, showed the official data released on Monday.

This has complicated the task for the Reserve Bank Of India (RBI) as pressure mounts on the central bank to cut the benchmark lending rate in its next policy review meeting on October 30 to complement the recent government measures to push up growth.

The July inflation figure has also been revised up to 7.52% from 6.87% announced earlier, showed the data. Economists had forecast a 7.70% rise in inflation for September after the government raised diesel prices by around 12%, compared with the August inflation of 7.55%. Inflation had touched 10% in September last year.

"You can't say the economy is overheated. Inflation is above the comfort level, but it is a lot better than last year," Planning Commission chairman Montek Singh Ahluwalia said. Although Prime Minister's Economic Advisory Council chairman C Rangarajan conceded "circumstances are not too favourable" for a rate cut now, he expected inflation to drop to 7% by the end of this fiscal.

Analysts said core inflation (price rise in non-food manufactured items), a key input for monetary policy-making, remained unchanged at 5.6% in September from the previous month. A Crisil report said persistently high core inflation could be a result of a partial pass-through of higher imported input costs rather than rising demand-side pressures.

"The government's recent reform measures created conditions for a rate cut by the RBI, but looking at the September inflation figure, chances are very slim now," Crisil chief economist DK Joshi said. Despite the odds in favour of a status quo, some analysts don't rule out a surprise rate cut to complement administrative reforms measures.

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