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India’s retail inflation eases amid concern about soaring fuel prices

India’s retail inflation eased to a five-month low in September, helped by softer food prices and weak consumer demand, amid rising concerns among businesses and policymakers about soaring global energy prices.

Consumer prices rose 4.35% in September from the same month last year, lower than August’s 5.3% annual inflation rate and below a Reuters poll of 4.5%, data released by the Ministry of Statistics showed on Tuesday.

Consumer prices in Asia’s third largest economy had increased 7.3% year-on-year in September 2020.

Food prices, which contribute to nearly half of the consumer price index, rose 0.68% year-on-year in September, compared to 3.11% a month before.

However, the recent surge in global crude oil prices to near $83 a barrel is making policymakers and consumers nervous given that India meets over 80% of its oil needs through imports.

“Energy shortages and rising oil prices are already having ripple effects on production and prices of other commodities,” said Sakshi Gupta, senior economist at HDBC Bank.

“This remains an upside risk for inflation once the base effect wears off from December onwards,” she said. The picture looked rosy on the inflation front, she said, though the economy faced challenges with global concerns about stagflation rising.

The Reserve Bank of India’s monetary policy committee left the repo rate unchanged at 4% last Friday, while asking the government to consider lowering taxes on petrol and diesel to help contain inflation.

Rising oil prices pushed up retail fuel prices by 13.63% in September from a year ago period, while prices for clothing and footwear spiked 7.16%.

Annual core inflation, excluding volatile food and fuel costs, was estimated at between 5.75% and 5.8% in September, according to three economists, remaining unchanged from the previous month’s level.

Further fuel price rises could add pressure to the Asia’s third largest economy, and force the government to review fuel tax that now exceeds 100% of the base price, economists said.

Business leaders said companies were for the time being not passing on rising input costs to customers due to sluggish consumer demand ahead of the festival season starting this month, helping to ease inflationary pressures.

“Companies are able to pass on rising fuel costs only partially but are worried about the inflationary trend,” said Anjali Bansal, president of the Bombay Chamber of Commerce and Industry, which represents more than 3,000 companies in India’s financial capital Mumbai. Reuters

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