By Deepak Jasani
CPI inflation print eased to a five-month low to 6.71% in Jul’22 compared to 7.01% in Jun’22 due to easing of food inflation. Food and beverage inflation softened to 6.71% in July from 7.56% in June on account of sequential decline in prices of vegetables, edible oils and protein items. Edible oil inflation has moderated in recent months owing to government interventions and easing global prices. Core CPI also moderated to 10-month low to 5.8% in July. Falling international commodity prices have eased cost pressures for producers to some extent.
Despite this moderation, CPI inflation still remained at uncomfortably high level and exceeded the RBI’s comfort zone for the seventh consecutive month. MPC members in the recently released minutes of their last meeting also expressed caution on the durability of the moderating momentum. Members were wary of near-term upside risks to inflation stemming from rupee depreciation, rise in GST rates and uneven distribution of the southwest monsoon.
India has witnessed above normal rainfall at 106% of LPA till Aug 31, 2022 with significant temporal and spatial variation. The All India reservoir storage stood at 83% of live capacity at FRL as on Sep 1, 2022 considerably higher than the levels seen in the year ago 65%. The revival of the monsoons and the resultant replenishment of reservoir storage as well as the pick-up in kharif sowing have improved the prospects for agri output. Also healthy reservoir levels augur well for a timely onset of rabi sowing which would further support moderation in food prices.
We expect a marginal uptick in Aug 2022 CPI to 6.75-6.9% as a fall in crude oil and derivatives prices offset a rise in the food prices.
We expect the WPI inflation for August 2022 to come in at 12.3-12.5% vs 13.9% in July 2022 due to easing input prices.
IIP growth slowed to 12.3% in Jun’22 from 19.6% in May’22 primarily due to some waning of the base-effect. Healthy growth in credit offtake, gradual revival in the consumption sentiment, improving capacity utilisation levels and strong government spending would support industrial growth. The RBI’s latest industrial outlook survey for the manufacturing sector pointed towards optimism, as suggested by the improvement in business expectations index. However, the manufacturing sector could face headwinds owing to global growth slowdown. We expect July 2022 IIP to come in at 5.7-5.9% vs 12.3% in June 2022 as the core infra growth for July 2022 came in at 4.5% compared to 13.2% in June 2022.
(Deepak Jasani, Head of Retail Research, HDFC Securities. Views expressed are the author’s own.)