Retail inflation likely eased in Sept on lower food, fuel costs

Consumer price inflation probably eased for a second straight month in September helped by lower food and fuel costs, a Reuters poll has found.

While prices were trending lower, analysts said the Reserve Bank of India's (RBI) inflation target further out in January 2016 may be difficult to achieve.

Consumer prices in September were forecast to have risen 7.2 per cent, according to a poll of 28 economists, weaker than 7.8 per cent in August. It would also be the lowest inflation reading since the indicator was introduced in 2012.

"A fall in vegetable prices on the month is the main reason we expect a fall in CPI," said Aman Mohunta, economist at Nomura. He added that a statistical base effect from September last year, when inflation was abnormally high, could temper Monday's data.

RBI has set a target of bringing inflation down to 8 per cent by January 2015 and 6 per cent by January 2016 but Governor Raghuram Rajan has admitted to upside risks on the latter target.

"The RBI has done a fairly good job in bringing down inflation expectations, even so six per cent by 2016 looks a bit ambitious," said Shilan Shah, senior economist at Capital Economics in London. "Any negative effect on local food production and food prices is the biggest risk...it's the one that's always there."

The poll also showed wholesale price inflation, will likely tick down to 3.3 per cent from last month's 3.7 per cent, due to a steady fall in global crude oil prices, which hit a near two-year low on Thursday. The WPI data will be released on Tuesday.

RBI gauges both measures of inflation when deciding on monetary policy, but with risks to the January 2016 CPI target, it is unlikely to cut interest rates this year.

The central bank said it would cut the ceiling on bonds required to be held-to-maturity from 24 per cent to 22 per cent starting in January 2015, in order to increase liquidity in financial markets.

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