According to Chowdhury, apart from the continued weakness in edible oil prices, the decline in retail inflation was due to the rapid decline in vegetable prices, which is a seasonal phenomenon.
Posted Date – Tue, 13 Dec 22 at 04:14pm
According to Chowdhury, apart from the continued weakness in edible oil prices, the decline in retail inflation was due to the rapid decline in vegetable prices, which is a seasonal phenomenon.
Chennai: With core inflation persistently high, credit rating agencies such as Acuite Ratings & Research and CARE Ratings do not expect any significant downward trend in retail inflation in the coming months.
“In a pleasant surprise, headline CPI inflation rose to 5.88% on Nov 22 from 6.77% on Oct 22, as most market participants estimated it to be above 6.0%. The lowest figure, apparently driven by a faster-than-expected fall in food inflation, was at 5.1% last month,” said chief analytics officer Suman Chowdhury.
According to Chowdhury, apart from the continued weakness in edible oil prices, the decline in retail inflation was due to the rapid decline in vegetable prices, which is a seasonal phenomenon.
“Nevertheless, the RBI was comforted by the core inflation data, which actually rose further to 6.29% in November 2022 from 6.23% in October 2022; on a monthly basis, core inflation rose by 0.43%, highlighting the inherent nature of the current inflationary environment,” Chowdhury said.
Moderately healthy domestic demand momentum, if not robustness, is keeping core inflation high.
Also, fundamentals are relatively favorable for the Nov. 22 print, which may not be the case for Dec. 22. Therefore, we do not expect any significant downward trend in CPI inflation in the coming months, Chowdhury said.
“Given the trajectory of core inflation, we continue to forecast an average CPI inflation figure of 6.7% for FY23. We also continue to expect another modest round of rate hikes on 23 February, which would bring final rates to 6.5% or higher, ’ said Chowdhury.
According to CARE Ratings, while inflationary pressures are trending downward, the war on inflation is not over.
The moderation in food inflation was welcome, but led mostly by vegetables, which are vulnerable to weather swings.
CARE Ratings said grain and milk inflation, the two largest contributors to food inflation, remained high and trending upwards.
In this context, the increase in acreage planted in Rabi this season is a reassuring factor. While goods inflation moderated, core price pressures remained elevated as services inflation strengthened.
Taking a cue from recent data, the RBI will remain cautious to prevent inflation expectations from spiraling upwards.
“We lowered our estimates for the remaining months of the fiscal year after CPI inflation fell on Nov. 22. We believe CPI inflation will remain at 6.5% to 6.7% on Dec. 22 and Jan. 22,” India said. said Dr Soumya Kanti Ghosh, Group Chief Economic Adviser, State Bank (SBI).
“Inflation will drop sharply thereafter, to 5% by March 23. For 1QFY24, we expect average CPI to be 4.4%. We are now on hold for the final 25bp (repo) hike in February The possibility is very small.”
However, CARE Ratings said the central bank’s decision to hike rates again at its February meeting will be a close call following disappointing manufacturing data.
