* CPI inflation likely to ease to 4.15% in Apr 2021: We expect headline CPI inflation to ease to 3-month low of 4.15% in April 2021, after remaining above 5% during FebMar 2021 due to unfavourable base effect. Lower food inflation is likely to drive the deceleration in headline CPI. Although prices of pulses and oilseeds recorded sharp increases during Apr 2021, vegetable prices have eased. We expect services inflation to ease in sequential terms despite tighter lockdown restrictions in many states. Core inflation is expected to ease to 5.4% in line with falling headline inflation. For FY22, our expected CPI inflation trajectory is lower than MPC’s trajectory. In the Apr 2021 review, the MPC said it expected CPI inflation to print 5.2% in Q1 and Q2, 4.4% in Q3 and 5.1% in Q4FY22. We expect CPI inflation to average 4.7% in Q1, 4.5% in Q2, 4.4% in Q3 and 4.9% in Q4FY22. Hence, while the MPC expects CPI inflation to average 5% in FY22, we expect it to average 4.6%. Also, in FY23, we expect CPI to average 4.9%, tad higher than MPC’s forecast of 4.5% to 4.8%.
* WPI likely to increase to series-high of 11% in Apr 2021: Unlike the easing trend in retail inflation, wholesale inflation is expected to rise to series-high of 11% in Apr 2021. In line with past few months’ trend, metal prices are expected to drive the increase in wholesale inflation. Our metal composite index, which has been recording double-digit increase since Oct 2020, recorded highest ever monthly increase of 43% in Apr 2021. As a result, we expect basic metals inflation at 21.3% in Apr 2021 and manufacturing inflation at 8.2%.
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