Comments on CPI numbers - Ms. Radhika Rao, India Economist, DBS Bank

Jump in Nov inflation surpassed even our above consensus forecast, testing past the 4% target for the first time in over a year. This also breaches the RBI's December revised estimates.

The jump is largely food and fuel led, partly spilling over to the core pressures. Latter also got a lift from HRA increases and slower pass-through from GST reductions. Looking ahead, while oil prices continue to grind up, food will play an important part in dictating the scale of increase, as winter arrivals start trickling in.

Inflation prints are likely to remain firm into Jan-Mar18 quarter, further into Jun18 quarter when the base effects are most acute.

Firm inflation and concerns over generalised pressures has shut the door on rate cuts. The jump in Nov inflation reinforces our view that RBI is settling into a long pause. Further increases in inflation and a narrower output gap might prod them to shift to a tightening bias next year.

Source : Equity Bulls

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