Perspective on CPI Data by Ms. Madhavi Arora, Chief Economist, Emkay Global Financial Services Ltd
Below the Perspective on CPI Data by Ms. Madhavi Arora, Chief Economist, Emkay Global Financial Services Ltd
Inflation surprises again!; FY26E inflation to see a new reset of sub 3.4%!
* CPI inflation eased further to 2.82% in May (Emkay:2.95%, Consensus:3%, 3.16% April), with core easing to 4.28% vs 4.36% earlier. Lower sequential food prices and a favourable base effect continued to drive headline CPI downwards, while core CPI momentum was also lower.
* Sharply lower prices for fruits, pulses and cereals drove the decline in food prices, even as vegetables reversed six months of sequential decline and registered positive growth (0.1% MoM). Easing of Core momentum (0.3% MoM vs 0.7% prior), was led by a fall in HH goods and services, while personal care slowed too, with gold prices rising ~2% MoM (vs ~7% MoM in Apr)
* The positive inflation surprise and near-term visibility on lower inflation suggest that the RBI may miss its inflation targets for this quarter and year, with FY26E inflation likely to form a new reset below 3.4% - much lower than RBI’s current estimates, helped largely by food inflation, while core turns higher to average ~4.3%
* That could trigger the RBI’s reaction function, which as of now has moved gears to a neutral stance, after rate cuts front-loading amid recent inflation downgrade to 3.7% from 4% earlier.
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