Assam's Inflation Index Hits Record High as Nationwide Rates Climb

Concerns are escalating as inflation takes a dramatic turn across India, posing significant risks to both the economy and the well-being of citizens.

In September, India's retail inflation surged to a nine-month high of 5.49% year-on-year, primarily driven by persistent increases in vegetable prices and a lower year-ago base. This spike marks a notable shift from the five-year low of 3.65% recorded in the previous month and exceeds the Reserve Bank of India's (RBI) medium-term target of 4% for the first time since July.

Assam reflects this troubling trend, facing its own inflationary pressures that challenge residents. The inflation index for the state has jumped from 187.8 in September of the previous year to 196.9 this year, indicating a significant rise in the cost of goods and services. 

The shift in inflation rates can be attributed to a high base from last year, which had initially helped reduce inflation in July and August. However, this high base turned into a lower base in September, leading to the current increase. Despite these fluctuations, the inflation level remains within the RBI's tolerance range of 2-6%. 

Food inflation, which constitutes nearly half of the overall Consumer Price Index (CPI) basket, rose sharply to 9.24% in September, up from 5.66% in August. Rural inflation accelerated to 5.87%, compared to 4.16% in the previous month, while urban inflation increased to 5.05%, up from 3.14%. A Reuters poll of 48 economists had predicted a jump in consumer price inflation to 5.04% for September, with forecasts ranging from 3.60% to 5.40%.

Vegetable prices saw a staggering increase of 35.99% in August, compared to 10.71% in July, exacerbated by heavy rains that reduced the availability of essential crops. Meanwhile, pulses and products experienced a slight easing of inflation to 9.81% from 13.6% in August.

Analysts point to the persistent spike in vegetable prices, particularly tomatoes and onions, as key contributors to the rising inflation. Dipanwita Mazumdar, an economist at Bank of Baroda, highlighted that rising international prices for edible oils are also adding upward pressure on inflation.

Fuel and light inflation decreased to -1.39% from a contraction of 5.31% in the previous month, while housing inflation increased to 2.78% from 2.66% in August. Clothing and footwear inflation stood at 2.71% in September.

In response to these developments, the RBI, during its October Monetary Policy Committee (MPC) meeting, maintained its retail inflation projection at 4.5% for the fiscal year 2024-25. RBI Governor Shaktikanta Das emphasized the need for careful monitoring of the price situation to keep inflation under control, using the metaphor of a "horse" to describe the central bank's approach to managing inflation.

Das has shifted his analogy from an "elephant" to a "horse," reflecting the ongoing efforts to contain inflation within the target range. "It is with a lot of effort that the inflation horse has been brought to the stable, i.e., closer to the target within the tolerance band compared to its heightened levels two years ago," he remarked.

While the RBI opted for a status quo in interest rates, it adjusted its stance to 'neutral' from 'withdrawal of accommodation,' citing greater clarity on the inflation front. However, experts like Radhika Rao from DBS Bank caution that a narrow segment of food articles continues to complicate India's disinflation trajectory, despite stability in non-food segments.

Looking ahead, the MPC is likely to adopt a forward-looking approach when considering rate cuts, also factoring in GDP performance for July-September before the next policy review. There is optimism that the strong finish of the monsoon will positively impact harvests and help moderate food prices toward the end of 2024, supporting the central bank's shift toward easing.

Also Read: India’s Retail Inflation Plummets to 5-Year Low in July