Suman Chowdhury, Chief Analytical Officer, Acuité Ratings & Research on December 2020 CPI Data

"The headline CPI print has sharply declined from 6.93% in Nov 2020 to 4.59% in Dec 2020 which is unexpectedly lower than the market expectations. Clearly, the significant decline in vegetable prices and importantly, a favourable base effect have led to such a significant decline. The drop in food inflation from 9.5% to 3.4% has indeed surprised, on the downside albeit the sustainability of such low food inflation would need to be seen. In our opinion, broad based inflationary pressures would nevertheless persist due to tax driven higher retail fuel prices, increasing commodity prices and its impact on core inflation which is already at the levels of 5.5%-5.7%. While the CPI print has nearly come down to the comfort level of the MPC, we believe that the likelihood of further easing is very low and an extended pause on the interest rates can be expected. The 10 yr gsec yields are expected to remain within a narrow range in the near term."

Source : Equity Bulls

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