Retail inflation based on Consumer Price Index (CPI) surged to 7.41 per cent in September as against 7 per cent in August. This is the ninth successive month of retail inflation being above RBI’s tolerance level of 6 per cent. Accordingly, experts say at least two more rate hikes are expected this fiscal.

Meanwhile, industrial production based on the IIP contracted to 0.8 per cent in August as against an expansion of 2.2 per cent in July. While prices of food items, especially vegetables, cereals and spices pushed the retail inflation, manufacturing brought down the industrial production.

Swati Arora, Economist with HDFC Bank, expects inflation to average at 6.7 per cent for FY23, with upside risks emanating from higher than expected food prices. On the policy front, “We expect the RBI to deliver a 35 bps repo rate hike in December and another 25 bps in February, taking the terminal rate to 6.5 per cent by the end of this fiscal,” she said.

Festival demand

Talking about industrial growth, Aditi Nayar, Chief Economist with ICRA, feels it is better to look at the uptrend in the GST e-way bills in August-September 2022 for cues regarding the strength of festival demand, than the tepid manufacturing growth print of August.

“The y-o-y growth of most available high frequency indicators improved in September relative to August, amid the onset of the festival season, such as Coal India Limited’s output, vehicle registrations, electricity generation, ports cargo traffic, rail freight traffic and diesel consumption, which is likely to help the IIP return to a positive, albeit modest growth, in the just-concluded month,” she said.