India’s retail inflation based on the Consumer Price Index (CPI) stood at 5.09 per cent in February, roughly at the same level as in January primarily due to food inflation. Economists stated that given the situation, the MPC might hold the repo rate steady till at least its June policy review.
Economists said that India’s retail inflation based on the Consumer Price Index (CPI) stood at 5.09 per cent in February, roughly at the same level as in January primarily due to food inflation, which was 8.66 per cent in February from 8.3 per cent in January. For the past six months, the CPI has stayed inside the RBI tolerance range for inflation which is still between 2 per cent and 6 per cent. In February 2023, CPI inflation was at 6.44 per cent. Core inflation fell to 3.3 per cent, offering significant reassurance and potentially steering headline inflation closer to the RBI’s 4 per cent target in the long run.
Dharmakirti Joshi, Chief Economist, CRISIL Ltd, said, “Pricey food leads to sticky headline inflation. Consumer price inflation (CPI) stayed put at 5.1 per cent in February as food inflation surged higher. While the kharif harvest has been helping in the softening of foodgrain inflation, vegetables yet again are playing spoilsport. The pressure from vegetables is broad-based. Inflation in ‘TOP’ (tomato, onion, potato) darted up to 22.7 per cent from 18.1 per cent in January, while the non-TOP category inflation rose to 34 per cent from 32.2 per cent. Meanwhile, softer core inflation and even non-food inflation (at 2.9 per cent) remains a relief.” CRISIL expects CPI inflation to continue to soften next fiscal to 4.5 per cent from an estimated 5.5 per cent this fiscal, supported by the assumption of a normal monsoon, softer domestic demand, and benign global oil prices.
Shraddha Umarji, Economist – Institutional Research, Prabhudas Lilladher Pvt Ltd, said, “The food price index continued to be elevated while fuel and core-CPI moderated. The coming months may witness moderation in food prices backed by pickup in rabi sowing besides normal monsoon showers. Fuel prices may continue to remain benign due to moderation in global demand besides slash in LPG and CNG prices domestically. Core inflation will be assisted by easing global commodity prices and elevated borrowing costs eroding demand in the near term.”
Suman Chowdhury, Chief Economist & Head of Research, Acuité Ratings & Research, meanwhile, said that going ahead in the summer months, hotter weather conditions can raise the upward risks for food and thereby, the overall inflation.
RBI to hold repo rate steady till June policy review
Economists also stated that given the situation, the MPC might hold the repo rate steady till at least its June policy review. Rahul Bajoria, MD & Head of EM Asia (ex-China) Economics, Barclays, said, “We expect the RBI to begin policy easing from Q324, as it awaits further signs from food prices, drawing comfort from benign core inflation and robust growth. Taking the data and early price indicators for March into account, we are tracking CPI inflation for March at 5.0 per cent YoY. We continue to expect CPI inflation to average 5.4 per cent this year (FY23-24), but see modest downside risks to this. For FY24-25, we expect inflation to average 4.5 per cent. With core inflation benign (below 4 per cent), we expect the RBI to continue to watch the trajectory of food inflation. Growth momentum holding up reasonably well offers further space to keep monetary policy disinflationary via unchanged policy rates and liquidity management.
We expect cuts to start in August, when inflation is likely to trend lower on a more durable basis.”
IIP at 3.8% in January
Separate data released by the NSO showed factory output growth, measured by the Index of Industrial Production (IIP), at 3.8 per cent in January from 4.2 per cent in December. In January 2023, IIP had grown 5.8 per cent YoY. Shraddha Umarji from Prabhudas Lilladher said, “The factory output growth is likely to be guided by recovering domestic demand amid improving employment prospects and cooling inflation. Likewise, continued government and private capex plans bodes well for infrastructure and capital goods indices. However, subdued global demand may erode growth of export intensive sectors dragging down the overall index. Indian Inc’s stable growth prospects coupled with easing inflationary concerns will be a guiding factor for the MPC decision at the forthcoming meeting. We foresee a change in stance to ‘neutral’ from ‘withdrawal of accommodation’ while a rate cut decision may be deferred for the next three to four months.”
Here are experts’ and economists’ views on CPI and IIP data:
Suman Chowdhury, Chief Economist & Head of Research, Acuité Ratings & Research
While RBI has estimated the headline print to be at 5.0 per cent in the current quarter, it is likely to be a tad higher at 5.1-5.2 per cent. The stickiness at the headline level has been largely due to persistent pressures in food inflation which moved up slightly from 8.3 per cent in Jan-24 to 8.7 per cent in Feb-24. Interestingly, the mild sequential uptick in the index has been largely contributed by the meat and the fish category where inflation hit 5.2 per cent vs 1.2 per cent in the previous month. Cereal inflation also continued to be high at 7.6 per cent with a sequential rise from Jan-24. However, there has been a sequential contraction in vegetables and pulses although the annualized inflation in these categories still remains very high at 30.2 per cent and 18.9 per cent, respectively. Going ahead into the summer months, hotter weather conditions can raise the upward risks for food and thereby, the overall inflation.
Nevertheless, the core inflation (excluding all food and fuel components) declined further from 3.7per cent in Jan-24 to 3.5 per cent in Feb’24 and will continue to be a comfort factor for the central bank. We expect RBI to maintain the status quo on monetary policy till August 2024.
Rahul Bajoria, MD & Head of EM Asia (ex-China) Economics, Barclays
CPI inflation was stable at 5.1 per cent in February. Food inflation rose moderately, but was offset by continued slowing in core and fuel inflation. We expect the RBI to begin policy easing from Q324, as it awaits further signs from food prices, drawing comfort from benign core inflation and robust growth.
Akhil Mittal, Senior Fund Manager-Fixed Income, Tata Asset Management
Headline inflation in February 2024 stands at 5.09 per cent, slightly below market expectations of 5 per cent and lower than January’s 5.10 per cent. The major contributor was food inflation, registering at 8.66 per cent against 8.3 per cent in January. Core inflation remains below 3.4 per cent, offering significant reassurance and potentially steering headline inflation closer to the RBI’s 4 per cent target in the long run.
While the RBI has highlighted the risk of food inflation spilling over into broader inflation, we anticipate the regulator to maintain a cautious stance. However, softening of core inflation should provide relief. We think RBI would rather continue with stability priority and continue maintaining the 4 per cent inflation target as sacrosanct, and hence we do not see premature easing from RBI.
Radhika Rao, Executive Director and Senior Economist, DBS Group Research
Food price inflation moderated by a slower pace, led by softness in selected segments including milk, however the usually volatile vegetables ticked up. The stable headline reading was in contrast to further slowdown in core readings, marking the slowest rise since the current series began. Overall, recent inflation prints, though above the target, are stable, with March tracking a shade below 5 per cent, suggesting the quarter’s average will not be far from the central bank’s projection. With food inflation still a pocket of concern, the central bank is likely to extend its cautious stance on the rates front. On the industrial production front, the supply-side segments including infrastructure, capital goods and intermediate goods are faring well reflecting the broad investments driven push, whilst demand driven segments especially non-durables, signals the unfavourable terms of trade impulse on the consumption.
Manish Chowdhury, Head of Research, StoxBox
The annual consumer price inflation in India stood at 5.1 per cent in February, similar to the reading of 5.1 per cent recorded in the previous month. Though inflation has stayed below the 6 per cent upper tolerance band of the RBI for the sixth consecutive month, we do not expect any material change in the central bank’s monetary policy stance in its April meeting as economic growth remains robust and inflation still hovers above the 4 per cent target. Our sense is that the RBI Governor will not move the needle until inflation, especially food inflation, comes down to acceptable levels on a durable basis. With the last leg of easing inflation expected to be sticky, we do not foresee a rate cut of more than 50 bps in FY25.
Nish Bhatt, Founder & CEO, Millwood Kane International
The consumer inflation rate in India decreased somewhat to 5.09 per cent in February from 5.1 per cent in January, primarily due to food inflation, which was 8.66 per cent in February—a little higher than 8.3 per cent in January. While, India’s industrial production output increased by 3.8 per cent in January 2024, mostly as a result of increases in manufacturing, power, and mining output. Hereon, deflation, increased production, and a rebound in rural consumption are all to be expected as the election draws near. On the other hand, the unpredictability surrounding food prices is concerning and requires observation.
Source:financialexpress.com