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Below is perspective on CPI IIP data By Mr. Nikhil Gupta, Chief Economist at Motilal Oswal Financial Services Ltd

“PI eases and IIP strengthens, reflecting base effect

Headline CPI grew 4.3% YoY in Apr'21, lower than our forecast of 4.6% and market consensus of 4.1%. The deceleration was broad-based.

Food inflation eased to 2% YoY last month (vs. our exp of 2.8%), while the core inflation eased to 10-month low of 5.2% YoY (vs. exp of 5.4%).

Going forward, *headline inflation could rise towards 5% by Jun'21 before easing to 3.5% by Nov'21. Overall, it could average 4.5% in FY22, following 6.2% in FY21.

IIP grew 22.4% YoY in Mar'21, same as our expectations and higher than the consensus of 20%. It implies that *industrial activity grew 5.3% YoY in 4QFY21, the highest growth in 12 quarters. This was on the base of a fall of 4.3% YoY in 4QFY20.

Notably, because of the base effect, IIP for capital goods posted it's first growth in nine quarters in 4QFY21, while infra/consumer sectors grew at fastest pace (8% and 9%) in 10/12 quarters.

Going forward, although IIP could grow 35-40% YoY in 1QFY22 (-35.5% in 1QFY21), *IIP growth could be 8-9% in FY22, following a fall of 8.7% in FY21.

Today's data releases are unlikely to have any impact on the monetary policy. Considering the second COVID wave, RBI is likely to remain accommodative this year.”

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