India’s retail inflation for September is expected to stay elevated, aligned with the trends seen in the previous months of this fiscal due to global supply disruptions, erratic rainfall, unstable fuel prices, and higher prices of cereal, vegetables,and pulses. The CPI inflation in September is likely to hover in the range of 7-7.3 per cent, according to estimates charted out by analysts. CPI inflation for August rose to 7 per cent from 6.7 per cent in July, 2022. If the estimations by the analysts come out to be true, this will be the ninth month that the retail inflation has remained above RBI’s upper threshold of 6 per cent. According to RBI’s assessment, the CPI inflation may come in the target band of 2-4 per cent in the next two years.
Food inflation to give upward push
CPI inflation is likely to remain elevated with high food and beverage inflation being the primary reason. F&B inflation is expected to scale up to 7.93 per cent in September, from 7.5 per cent in the previous month. Latest CPI inflation numbers are seen steady at 7.03 per cent, marginally deviating from August levels, said Teresa John, economist at Nirmal Bang Institutional Equities. However, the retail inflation levels are likely to moderate in the second half of the current fiscal, Teresa noted in the report. “We continue to expect CPI inflation to average ~6.2 per cent in FY23 vs the RBI’s estimate of 6.7 per cent,” Teresa added.
Domestic inflation may benefit from softening of global commodity prices
Given that the energy prices remain stable, the retail inflation rate could sustain steadiness and average out at 6.6 per cent in the current financial year, analysts at Kotak Mahindra Bank said. If crude prices remain in the vicinity of $90 per barrel, the average can go down to 5.1 per cent in FY24. However, the uncertainty in the energy prices still linger seeing the geopolitical tensions, Kotak analysts added.
CPI Inflation levels may come under RBI’s upper tolerance level around April next year
India’s CPI inflation in September will be higher and is expected to be around 7.2 percent on-year due to rising cereal prices before harvesting season, OPEC+ production cuts, and aggressive repo rate hikes by central banks, said Ritika Chhabra, Economist and Quant Analysts at Prabhudas Lilladher. “The interest rate hikes by central banks act with a lag, and due to this lag effect, there will be a drop in demand that will start to show in the beginning of next year,” Chhabra told FE.com. She added that the drop in demand may drag down commodity and oil prices, hence, setting the CPI inflation rates below the RBI’s upper tolerance levels of six per cent around April 2023.
Financial situations tight due to aggressive monetary policy actions around the world
Erratic rainfall and supply disruptions due to Russia’s invasion in Ukraine may force CPI inflation levels in September to be around 7.5 per cent, according to Tanvi Kanchan, Head – Corporate Strategy, Anand Rathi Shares and Stock Brokers. Mentioning the recent repo rate hike by RBI, Tanvi added, “Globally, we are looking at high volume of global news flow, events and uncertainty. Financial conditions have tightened following aggressive monetary policy action across the world to combat surge in inflation, causing further volatility.”
Inflation may fall sharply in October
On the back of high base effects, sequential reversal in food prices, and high base effects, the CPI inflation is expected to fall sharply in October, despite remaining buoyant in September. CPI inflation by the end of the second quarter of FY23 is expected to jump to 7.3 per cent on-year, as opposed to 7 per cent in August 2022, according to Barclays’ India Economist, Rahul Bajoria.