Chances of a rate cut by RBI are bleak, say analysts.
"Aside from volatile food and fuel prices, core inflation is likely to accelerate," said an economist.
New Delhi: The annual consumer price inflation remained steady in September from the previous month, but hopes of a rate cut by the Reserve Bank of India remain bleak as it expects higher inflation in coming months. The annual consumer inflation (CPI) in September rose to 3.28 per cent from a year earlier, government data showed on Thursday.
Analysts polled by Reuters had expected September's CPI inflation rate would edge up to 3.60 per cent from August's downwardly revised 3.28 per cent.
Earlier this month, the RBI left interest rates unchanged, after cutting the key rate by 25 basis points in August, while raising its retail inflation projection for October-March to a range of 4.2 to 4.6 per cent, and lowered its economic growth estimates.
Analysts said the chances of a rate cut were bleak as higher sales during the upcoming festive season, coupled with higher petrol and diesel prices, could feed into broader prices.
"Aside from volatile food and fuel prices, core inflation is likely to accelerate," said Shilan Shah, an economist at Capital Economics in Singapore.
"There is also a risk that excessive liquidity in the banking sector could seep into inflation."
Since August 1, retail petrol prices in Delhi have gone up 4.7 per cent and diesel 2.6 per cent despite a cut in taxes by the Central government.
Retail inflation has been steadily rising since June, when it eased to 1.46 per cent - its slowest pace since India started releasing such figures in January 2012, based on combined data for rural and urban consumers.
Separately, annual industrial output grew at a nine-month high of 4.3 per cent in August, compared with the forecast of 2.4 per cent by economists in a Reuters poll, the data showed.
Industrial output growth was revised to 0.9 per cent year-on-year in July.
Prime Minister Narendra Modi, who faces crucial state elections in Gujarat and Himachal Pradesh in December, is under pressure to revive growth, which slipped to 5.7 per cent in the April-June quarter, the slowest pace in three years.
Last week, the government cut the Goods and Services Tax (GST) on 27 items, mostly food products, and eased rules for small and medium-sized companies, as it rushes to address growing criticism of the uniform tax launched in July.
The government, facing risks of a widening fiscal deficit this year mainly due to lower growth in revenue receipts, wants the RBI to ease policy rates to support private investment and revive growth.