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Perspective on Q1FY23 GDP data by Mr. Nikhil Gupta, Chief Economist, Motilal Oswal Financial Services Ltd

Aug'22 inflation was slightly higher and Jul'22 IIP growth was marginally lower than expected

Not-so-concerning for either the markets or policy makers

-- Headline inflation came in at 7% YoY in Aug'22, in line with our expectations but higher than the market consensus (of 6.9%). Food inflation surged to 7.6%, led by 103-month high inflation in cereals (9.7% weight in CPI).

-- Core inflation, thus, surged slightly to 6.1% YoY last month, from 6% in Jul'22.

-- Notably, imported inflation was at 2-yr low of 11.1% YoY, implying that domestically generated inflation surged to 6.5% YoY in Aug'22.

-- IIP, on the other hand, grew just 2.4% YoY in Jul'22, lower than market/our expectation of 4.2%/3.8%. The bigger surprise was 3.3% YoY fall in mining activities, marking first decline in 17 months.

-- Overall, the combination of slightly higher inflation and marginally slower growth is not desired. However, it is unlikely to concern the policymakers and/or markets at this stage. We continue to believe another 50-60bps hike in CY22 (with 25-35bps hike in Sep'22), taking the repo rate to 6% by Dec'22.

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