CPI inflation comes in higher than expected at 3.58%: Angel Broking

Views of Mr. Jaikishan J Parmar (Research Analyst, Angel Broking):

"The CPI inflation, a measure of retail inflation, for the month of October 2017 came in at 3.58%, nearly 30 basis points higher than the September levels. Food inflation went up sharply to 1.90% in October from 1.25% in September and was the big trigger for the rise in overall inflation. Interestingly, urban inflation for October is nearly 45 basis points higher than rural inflation; a reversal of the trend of the last couple of years. While pulses continued to deflate at -23%, the big boost to food inflation came from vegetables which turned sharply higher at 7.47% due to substantial wastage and crop damage. Inflation in fruits and milk also remained elevated.

While the rise in CPI inflation was largely due to the food inflation factor, higher crude oil prices have also had a downstream effect. That brings us to the core question of how will the RBI react to this inflation number when it meets for its monetary policy review on December 06th. Firstly, the CPI inflation is still well within the RBI comfort zone of 4%. Secondly, the GST Council has drastically cut the GST rates on 75% of the items in the 28% GST bracket and that is likely to have a subduing effect on retail inflation in the coming months. However, the RBI rate decision may still predicate on the Fed trajectory."

Source : Equity Bulls

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