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Below perspective by Ms. Madhavi Arora, Lead Economist, Emkay Global Financial Services on CPI numbers.

CPI inflation: Core inflation to undershoot headline ahead

December CPI inflation printed a tad better than our expectations at 5.69%, but still rose mildly vs last month. While the food inflation data on a sequential basis was underpinned by the seasonal contractionary behaviour seen in December, we reckon the perishables, specifically veg prices easing was lower than the average seasonal behaviour. Nonetheless, the food inflation has still ticked up on YoY basis. The Mandi prices are showing correction in perishables to continue, while select protein goods would need a watch. Encouragingly, core inflation has eased further to 3.77%, led by seasonal sequential contraction in housing, but even ex-housing, the core momentum has remained contained.  The inflation downtrend will be more visible in 4Q, averaging 5.1%, while core could be sub 3.75%. We see FY25E headline inflation at near 5.2% (FY24E:5.37%) , while core would average much lower -- near 4%, after ~4.42% in FY24E. That said, we don’t see any action by the RBI, and it is unlikely to precede the Fed in any policy reversal.

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