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

Encouraging growth-inflation mix is on hand, as inflation moderated, whilst production numbers rang in another good month, helped also by base effects when the demonetisation impact had depressed prices and economic activity. Lower food particularly vegetables, continues to be the key drag on the headline (on sequential basis). Core inflation is a shade firmer on higher service price pressures, particularly housing and education components. This also reflects a gradual pick-up in input (and subsequent output) prices, reflecting as commodity prices feed-through. At the April review, the RBI surprised with a notable downward revision in FY19 inflation forecasts, along with dovish undertones in the commentary. Signs of a pick-up in core pressures and hardening of inflationary expectations on higher oil prices and likelihood of MSP increases, might see the central bank adopt a cautious hue in the coming months. Policy nonetheless will maintain on a steady course in 2018. Bond markets have been underperforming in recent sessions and this is likely to spillover into tomorrow's trade, with a slightly firmer than consensus inflation in today's release to keep a lid on demand while lower centre's borrowings offset by higher states' supply.

Source : Equity Bulls

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