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Perspective on July CPI and June IIP  data by Mr. Nikhil Gupta, Chief Economist, Motilal Oswal Financial Services Ltd

Jul’22 CPI-inflation falls in line with expectations; Jun’22 IIP slightly better
* India’s headline inflation eased to 5-month low of 6.7% YoY in Jul’22, in line with the market/our expectation. Core inflation (ex F&B, F&L and P&T) also eased to 10-month low of 6% YoY last month. Few other details are:
   * Food inflation eased more than expected to 5-month low of 6.7% YoY. While most food items eased last month, inflation in ‘cereals & products’ (weight = 9.7%) rose to 8-year high of 6.9% (barring Apr-Jun’20 period).
   * Imported inflation (weight = 9.8%) also eased to 13.3%, implying that domestically generated inflation eased to 5-month low of 5.9% last month.
   * Inflation in ‘Miscellaneous’ category eased to below-6% for the first time since Apr’20.
   * Further, ‘services’ inflation (weight = 23%) remained contained at just 5.1% last month, same as in the past two years.
   * A little concerning was the fact that the globally standard measure of core inflation (ex food & energy) rose to 3-month high of 6.3%, lower than its peak of 6.5% in Apr’22, but second-highest since the series is available since Jan’15.
* Separately, IIP grew 12.3% YoY, higher than expectation of 10.3%, led by capital and consumer goods. It means IIP grew 12.7% YoY in 1QFY23.
* Overall, today’s inflation was a non-event and unlike to move the bonds market or Central Bank’s policies. We expect inflation to ease towards 6%/5.5% by 4QFY23/Mar’23. Accordingly, RBI could hike repo rate by another 50-60 bps by Dec’22.

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