India’s CPI inflation may have firmed up in August against July, as food price rise may offset easing input price pressures from petroleum products and gold. Deutsche Bank estimates that India’s consumer price index (CPI) firmed to 6.9 per cent on year last month, while core inflation likely stood at 6%. India will release consumer price index (CPI) inflation data on Monday, 12 September 2022. Analysts at Nirmal Bang see August CPI inflation at 6.75 per cent, largely unchanged from 6.71 per cent in July. According to RBI’s assessment, inflation peaked in India at 7.79 per cent in April and is now on a downward track.
Why easing fuel pressure won’t help cool inflation
Deutsche Bank noted that while Brent crude oil prices have recorded a steep decline in recent weeks, the favourable impact will be less reflected in the CPI inflation number as fuel items account for a very small weight. Meanwhile, the risks to food inflation persist with negative seasonality kicking in for the September-November period, the bank said, Deutsche Bank said. Last week, RBI governor Shaktikanta Das said in a TV interview, that even though CPI inflation will map a downward trajectory in the coming months, it will not be a smooth slide, and there may be some bumps along the way. Das emphasised that inflation in India may continue to ease as crude, food and commodity prices have softened.
The greater impact of food inflation
According to Kaushik Das, chief economist for India and South Asia at Deutsche Bank, key vegetable prices tend to shoot up during August. Besides seasonality, sowing of pulses has also fallen by 5 per cent year-on-year, he said adding, “These could be potential risk factors, which could keep food inflation momentum high, consequently resulting in an elevated CPI closer to the 7 per cent mark.”
Domestic brokerage and research firm Nirmal Bang estimates CPI food & beverage to rise to 7.1 per cent in August, mainly due to higher prices of cereals, pulses and to some extent milk. Inflation in most other food categories was muted, with oils & fats inflation continuing to see a decline. “Easing input price pressures, particularly petroleum products and gold, will support marginal drop in core CPI inflation. However, pricing power in the services sector remains healthy,” they said.
According to the S&P Services PMI survey, companies sought to protect margins from cost increases by lifting their selling prices in August. In some instances, panel members indicated that revisions were supported by accommodative demand conditions. The overall rate of change in inflation was solid and broadly similar to that seen in July.
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