Mr. Suman Chowdhury, Chief Analytical Officer, Acuité Ratings & Research comments on the CPI data Sep'21
India's headline CPI inflation dipped sharply to 4.35%YoY in Sept'21, almost a 100 bps reduction from the 5.30%YoY in Aug'21 which reflects a sharp decline in annualised food inflation to 1.61%. The food prices have been more benign than expected and also is heavily supported by the base factor as seen by the minor 0.1% sequential rise in the food price index. What has helped is a significant deflation in vegetable prices to the extent of 22.5%; however, the latter is volatile and the stability of such low vegetable prices is to be seen. Having said that, the overall food inflation is expected to stay low over the next 1-2 quarters given the favourable crop estimates for kharif and the ensuing rabi season.
On the other hand, core inflation remains a concern as it is estimated at 5.75% for Sep'21. Fuel and light inflation have remained high at 13.6%. Continuously high oil and other commodity prices as well as the increasing industrial raw material shortages ranging from semiconductors to coal can have near to medium term implications on core inflation going forward.
We have maintained our CPI inflation forecast of 5.5% for FY22 given the declining trajectory of food inflation. The upside risks to this forecast, however, may increase if there are strong signs of a demand pickup by end of Q3FY22.