CPI ex veggies was at 37-month low of 5.4% Says Mr. Nikhil Gupta, Motilal Oswal Financial Services Ltd
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Below Perspective on CPI and IIP Data by Mr. Nikhil Gupta, Chief Economist, MOFSL group
Lower inflation and weak IIP = No rate hike in Jun'23
* Headline CPI inflation came in at 4.7% YoY last month, lowest in 18 months and lower than the market consensus of 4.8% and our forecast of 5%. Lower than expected food inflation (3.8% v/s 4.3%) led to this surprise, as core inflation was in line with our forecast at 5.1% (the lowest in 35 months).
* Other details suggest that the fall in headline inflation was not broad-based, although it's highly welcome.
* Deflation in imported items (weight = 9.8%) led to lower headline inflation. Domestically generated inflation was at four-month low of 5.7% YoY in Apr'23.
* CPI ex veggies was at 37-month low of 5.4%
* Standard core inflation (ex food & energy, weight = 51.8%) was up 5.8%, lowest in 11 months
* Services inflation was at 11-month low of 4.8%, with core services inflation (ex-housing) at 3-year low
* Details suggest that 49.3% of CPI basket still posted 6%+ inflation v/s 51.9% in Mar'23.
Overall, we continue to expect inflation to ease towards 4.5% in coming months and towards 4% by Sep-Oct'23, much lower than the RBI and market consensus (of >5%)
At the same time, IIP came in at just 1.1% YoY in Mar'23, much weaker than the market (and our) forecast of ~3.8%, putting some downward pressure on 4QFY23 GDP.
Consequently, there is no reason to expect another rate hike by the RBI next month or beyond that.
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