India’s retail inflation has surged to 7.41% in September, making it certain that the Reserve Bank will go for a further interest-rate hike when it meets for the next policy review in December.

This is the fastest acceleration in five months and also the ninth straight month when inflation has stayed above the Reserve Bank of India’s tolerance limit.

As per the legal mandate, the RBI is considered to have failed to meet its inflation target if the average Consumer Price Index (CPI) stays outside the range of 2 to 6% for three straight quarters.

The CPI inflation stood at 6.3% for the January-March quarter and 7.3% in April-June. It has averaged 7% for the quarter ended September.

The RBI will have to give a report to the government stating reasons for failure to contain inflation within the 2-6% mandate.

Retail inflation was at 7% in August and 4.35% in September 2021.

The rise in September inflation was led by food prices. Food inflation, which accounts for nearly half the food basket, climbed to 8.6% in September 2022 as against 7.62% in August. September food inflation is the highest in 22 months.

“Another rate hike is certain in the December 2022 MPC review, after the uncomfortable inflation print of 7.4% for September 2022. The quantum of the next rate hike will be determined by how much the inflation print recedes in October 2022, as well as the strength of the GDP growth for Q2 FY23," Aditi Nayar, Chief Economist, ICRA, said.

"The excessive rainfall in early October 2022 may adversely impact the kharif harvest and delay rabi sowing, thereby posing a material upside risk to the food inflation outlook. However, the impact of the same on the y-o-y food inflation prints is likely to be partly mollified by the high base that lies ahead for H2 FY23," she added.

Meanwhile, industrial production contracted 0.8% in August, as per the Index of Industrial Production (IIP) data released by the National Statistical Office (NSO). In July, this stood at 2.4%.

Manufacturing sector’s output fell 0.7% in August 2022. Mining output contracted 3.9%, while power generation increased 1.4% during the month.