India’s Sept retail inflation accelerates to five-month high
BENGALURU, Oct 12 (Reuters) – India’s retail inflation accelerated in September to a five-month high of 7.41% year-on-year, driven by surging food prices, raising fears of further rate hikes when the central bank meets for its next policy review in December.
“September’s elevated reading marks three consecutive quarters of above 6% inflation, resulting in a miss in the inflation mandate, and will require the central bank to explain this miss.”
“Besides base effects, the pre-harvest seasonal lift in food categories added to the headline, compounded by erratic rainfall, pushing up perishables and cereals, while core pressures stayed sticky.”
“Policy is likely to maintain a hawkish bent on above-target inflation and a weaker currency, which complicates the central bank’s inflation fight.”
“Going forward, we expect CPI to average closer to 6% only by Q4 FY23E and expect FY23 CPI inflation at 6.5%, with upside bias.”
“We expect the Monetary Policy Committee (MPC) to hike policy repo rate by another 40-50 bps this financial year.
“From the household’s point of view, with food accounting for nearly 40% of the total consumption basket, the impact of rising food prices is much more severe on their spending power, especially of discretionaries, than is the case where food accounts for relatively lower share.”
“For the central bank, the bigger challenge though is the firming up of core inflation.
BENGALURU, Oct 12 (Reuters) – India’s retail inflation accelerated in September to a five-month high of 7.41% year-on-year, driven by surging food prices , raising fears of further rate hikes when the central bank meets for its next policy review in December.The latest data shows retail inflation remaining above the Reserve Bank of India’s target for three quarters, implying it will have to report to the government why it failed to meet the target, and what actions it will take.Annual retail inflation (INCPIY=ECI) in September was higher than the 7.3% forecast in a Reuters poll of economists, and above 7% the previous month, data released by the National Statistics Office on Wednesday showed.”September’s elevated reading marks three consecutive quarters of above 6% inflation, resulting in a miss in the inflation mandate, and will require the central bank to explain this miss.””Besides base effects, the pre-harvest seasonal lift in food categories added to the headline, compounded by erratic rainfall, pushing up perishables and cereals, while core pressures stayed sticky.””Policy is likely to maintain a hawkish bent on above-target inflation and a weaker currency, which complicates the central bank’s inflation fight.””Going forward, we expect CPI to average closer to 6% only by Q4 FY23E and expect FY23 CPI inflation at 6.5%, with upside bias.””We expect the Monetary Policy Committee (MPC) to hike policy repo rate by another 40-50 bps this financial year. Should the CPI inflation fail to moderate to a level close to 6% in Q4FY23, room for further rate hikes could open.”
“At 7.4% Y/Y, CPI was higher than our and market expectation. The surge, not surprisingly, was led by food prices .”
“From the household’s point of view, with food accounting for nearly 40% of the total consumption basket, the impact of rising food prices is much more severe on their spending power, especially of discretionaries, than is the case where food accounts for relatively lower share.””For the central bank, the bigger challenge though is the firming up of core inflation . We expect the RBI to effect an hike of an additional 60 bps during FY23 with the terminal policy rate likely touching 6.5%.”
