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CPI INFLATION RISEN; REAL RATES NEGATIVE 

* India’s retail inflation grew for the second consecutive month, rising 6.83% in Aug ‘23, breaching RBI’s tolerance band.

* The rise was primarily driven by a surge in vegetable prices and elevated inflation in other food categories such as cereals, pulses and spices.

* Vegetables prices fall is not fully reflected in CPI, but cereals and pulses prices are expected to remain firm due to deficient monsoon.

* India’s wholesale price index remained in deflationary territory for the fifth consecutive month due to easing mineral oils, basic metals, chemical and textiles prices, even though food prices surged.

HIGH FOOD INFLATION

* Food inflation for August was at 9.5% and has moved up primarily due to higher vegetable prices, cereals, and pulses.

* Government has taken several measures to control cereal inflation such as increased export duty on rice, import of tomatoes from Nepal. The government also reduced LPG gas rate that is expected to reduce 30 basis points in the next inflation reading.

* As per India Metrological Department, rainfall for the month of September is expected to be normal. Rainfall till Sept 20, is 7% below normal.

* Sowing area is similar to last year, with rice sowing higher but pulses, wheat, sugar on the lower side.

* Next CPI inflation reading is expected to be in the range of 5.50% to 5.75%.

RBI PROJECTIONS – LONGISH PAUSE

* In the Aug MPC RBI maintained a status quo on the repo rate keeping it unchanged at 6.5%. MPC decided with a 5:1 majority to maintain stance as withdrawal of accommodation

* The recent spike in inflation bought the real rates in negative territory for a temporary period

* CPI inflation estimates for the FY24 has been increased to 5.4% from 5.1% with Q2- 6.2%, Q3- 5.7% and Q4- 5.2%.

* RBI maintained the FY24 growth expectation at 6.5% .

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