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Below View On CPI data from Anita Rangan – Economist, Equirus

"On a surprise positive, headline CPI inflation has come at 5.88% in Nov-22 vs market expectations of ~6.4%. The key positive is that the inflation number has come in below 6%, 4 months ahead of time. It was widely expected to trend below 6% by March 2023. Along with this the IIP data for Oct-22 has declined at -4% clearly suggesting that the manufacturing sector headwinds from external risks (export slowdown). However, within the details of inflation, it appears that core inflation remains sticky. The support is from food inflation which eased notably to 4.7% (vs 7%), in turn supported by a high base of vegetables resulting in a price decline of -8.1%. Other food components, however, particularly cereals, spices, milk products continue to remain elevated. Meanwhile, fuel and light returned to a double-digit growth of 10.6% (vs 9.9%). Core components of household goods (7.7%), health (5.8%), personal care & effects (7.2%) are higher. Whereas housing and education continue to be sticky. Clothing & footwear is lower at 9.8% (vs 10.2% in the previous two months).  Overall, core inflation has continued to be ~6% since Sept-22.

While RBI has brought in the debate of headline vs core, this inflation print is clearly a reason to cheer even if it is led by seasonal vegetables. Notably with a good rabi harvest following the kharif harvest, the scope for cereal prices to reduce has emerged. Furthermore, with crude prices coming down, imported inflation can come down as well.

Overall, this summarizes the view that RBI in the Feb policy can look for a pause. It is interesting to note that over the last week, the government passed a supplementary grant for additional expenditure by the center of INR 4.36 lakh cr with a cash outlay of INR 3.25 lakh cr (Rest being savings from other expenditure). The key items of the additional spend being food, fertilizer and rural development. This brings the upcoming budget and the borrowing program for next year into focus which will not likely be less than this year (dated central govt. borrowing of INR 14 trillion) and therefore will require support from RBI, with the tight liquidity scenario"

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