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Below the perspective on CPI and IIP Data by Mr. Nikhil Gupta, Chief Economist, MOFSL group.

Unexpected duo data unlikely to change RBI policy in Feb'23

-- Today's data were totally unexpected. Headline CPI-inflation was much lower than consensus in Nov'22 though IIP declined sharply in Oct'22.

-- Notably though, the entire positive surprise in CPI was due to food inflation (down to 11-month low of 4.7% YoY), as core inflation inched up to 6.3% YoY from 6.2% last month. Services inflation was largely intact at 5.5% and the CPI basket with 6%+ inflation increased to 56.2% from 54.7% in the last two months.

-- Separately, IIP contracted 4% YoY in Oct'22, faster than BMBG consensus of -1%. It was revised up to 3.6% (from 3.1% reported earlier) in Sep'22.

-- Overall, the combination of lower inflation and weaker growth is likely to persist in CY23, though the magnitude of fall (in both) was surprising today. Since IIP is a key input in quarterly GDP estimates, it imparts downward bias in 3Q GDP growth. At the same time, details of CPI are not so encouraging.

Thus, we maintain a 25bp rate hike in Feb'23 by the RBI.

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