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Below is the Views On CPI Inflation numbers By Mr. Nikhil Gupta, Chief Economist, Motilal Oswal Financial Services
December headline inflation at 7.4% Forget about rate cuts, can rates be hiked now?
As against the mkt expectations of ~6.7%, headline inflation was at 67-month high of 7.4% in Dec'19. Core inflation also rose to 3.7% and inflation ex vegetables crossed 4% for the first time in 14 months. At 14.1%, food inflation certainly is worrying. Almost all sub-items posted higher than expected inflation (with an exception of fruits). Even if 'vegetable prices' decline 5% MoM over the next two months, headline inflation will stay at 7%. What worries us is that headline inflation is likely to stay above 5% in CY2020, which confirms that rate cuts are a thing of past now.
Although it may be an over-exaggration to call India in stagflation (growth is still >4%), debate over rate hikes may get serious. Consider it in the backdrop of lower savibgs and the case will strengthen.
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