Perspective on CPI numbers by Madhavi Arora, Emkay Global Financial Services
Below are Perspective on CPI numbers by Ms. Madhavi Arora, Lead Economist, Emkay Global Financial Services
* The March CPI inflation at 5.52% (5.03% in Feb) is exactly in line with our expectations, partly led by unfavourable base effect and mild sequential uptick in core inflation. The food inflation is up 4.94% (3.87% in Feb) largely the base effect of last year’s print as March sequential uptick in prices of edible oils, pulses, meat and fish, and fruits were countered by sharper sequential fall in vegetables. Core inflation (ex food, fuel and intoxicants) was sticky at 5.7% albeit has eased sequentially across most sub-categories.
* If the food inflation normalizes in the next year to sub 3% (from 7.8% in FY21), the headline inflation could average 4.6-4.7% in FY22E vs. ~6.2% in FY21.
-- But the risks of (1) increasing input costs, (2) higher commodity prices, (3) seasonal upside in food prices and possible re-emergence of food supply disruptions due to localized lockdowns, and (4) better pricing power would be key risks to FY22 inflation forecast.
* However, local lockdowns, if persist, could impact services demand negatively, will put downward pressure on Q1FY22 core inflation and act as a balancing factor to emerging upside risks to inflation.
-- We do not see the RBI changing its rates stance any sooner, even as their forecast is averaging higher than us and is closer to 5% in FY22E. Moreover, the RBI’s reaction function is now contingent on durability of growth recovery and is now led by a more open-ended and state-based guidance amid new uncertainties and the evolving nature of the economy .
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