India CPI for Nov 22 rose 5.90% much below the consensus estimates of 6.40%. The fall in inflation was driven by 0.72% mom decline in prices of food and beverages ( 45.86% of the CPI basket). December generally sees seasonal food prices correction. Higher acerage of the winter crop is likely to aid the decline but a warmer winter weather is likely to be a cause of concern.
The headline print saw a decline to 5.90% however the core component continues to be sticky with core CPI at 6% ( excl food and beverages and fuel and lighting). Mom core CPI has averaged 0.50% price pressures continue to be broad based.
According to my estimates , the sharply lower print of 5.90% could see March23 headline print at 5.00% and the month of May will mark the cycle low in inflation prints. The September and the November print materially altered the year end projections.
However, at this point the stickiness of the core component as was highlighted in the RBI policy will be crucial. The risk from pass through of prices needs to be watched.
The index of industrial production contracted sharply at - 4% driven by contraction in manufacturing of 5.60% though electricity and mining continued to expand , growing at 1.2% and 2.5% respectively. For the period Apr- Oct, mining has grown 4%, manufacturing 5% and electricity 9.4% with headline growth of 5.30%.
The market is now divided if the 6.25% marks a peak in repo rate or we see 1 more hike of 25 bps before a decisive pause.
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