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Below are Perspective On CPI Data By Prof. Krupesh Thakkar, CFA, HoD, Financial Markets, ITM B-School

“The Consumer Price Index (CPI) for the month of June 2021 came at 6.26% vs 6.30% in the month of May 2021. The sequential rise is at 0.56%. It is the second consecutive month when the retail inflation is above RBI’s original target of 2%-6%.
 
The rise in prices of food and beverages (1.18%, m-o-m) is mainly due to seasonal rise in prices of vegetables and also in prices of pulses. The fuel price index has stabilised however the impact of earlier rise in fuel prices is still visible in the price index of transportation which rose by 1.7% (m-o-m). 
 
So, what will RBI do in its next MPC Meet? Though, the average CPI for the Q1FY22 has come at 5.6%, higher than RBI’s projection of 5.2%, it is unlikely to see RBI tightening its stance. The growth of the economy would still be the priority for RBI. 
 
Also, unlike the last few months where the lower base had resulted in yearly inflation numbers being high, this time the higher base has capped the yearly numbers. And this might continue in the coming months. So, RBI would like to see how CPI shapes up and whether it is coming down to its Q2FY22 average target of 5.4%. 
 
Meanwhile, IIP figures are not encouraging with a sequential fall of 7.97% in May 2021, though the yearly figures are positive at 29.3%. The fall is also broader with almost all the segments under IIP falling sequentially. This would be another reason for RBI not to tighten the screw so early. However, the language and tone need to be seen of the policy.”

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