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Below Perspective on September CPI and August IIP Data by Mr. Nikhil Gupta, Chief Economist, MOFSL group

Slightly higher Sep'22 inflation and unexpected contraction in Aug'22 IIP raises concerns

India's headline inflation surged to 5-month high of 7.4% YoY last month v/s market consensus of 7.3% and our expectation of 7.5%.

As expected, higher inflation was led by food items. Food inflation surged to 22-month high of 8.6% YoY in Sep'22, while core inflation rose to 4-month high of 6.3%.

IIP declined 0.8% YoY in Aug'22 v/s the market consensus/our expectation of 1.7%. This was the first contraction in 18 months.

Overall, the combination of slightly higher inflation and fall in IIP raises concerns. However, next month data and US Fed's policy will decide whether we see 35 or 50bp hike by the RBI in Dec'22. In any case, we continue to expect that the terminal rate will be 6.5% and there will be pause in global monetary policy in CY23.

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