Acuité's CPI inflation forecast currently stands at 5.9% for FY23 - Acuité Ratings

Mr. Suman Chowdhury, Chief Analytical Officer, Acuité Ratings & Research

"India's headline CPI inflation has surprisingly flared up beyond the market expectations to 6.95% YoY in Mar-22 from 6.07% YoY in Feb-22. While the average inflation for FY22 as a whole stands at 5.51% in line with our expectations, the average for Q4 (Jan-Mar) stands at 6.34%, significantly above RBI's expectations. What is important to note is that the current print is not yet driven by the latest rise in retail fuel prices which has largely been implemented from end Mar'22.

The headline 6.95% print is the highest since Oct-20 and will clearly be a major concern for the central bank which may have to make further changes to its revised forecast of 5.7% for FY23. On a sequential basis at 0.96%, this is the highest growth since May-21 and primarily reflects the unexpected rise in overall food prices that notched up a sequential growth of 1.32%. It can be noted that in Mar-21, food inflation had actually declined by 0.13%. Among the food categories, there has been a visible price rise in edible oil, cereals, meat and fish, milk and fruits. The spurt in edible oil prices on an already higher base is on account of the supply shortage concerns in sunflower oil where Ukraine is a large exporter.

Additionally, core inflation has moved up further to 6.5% in Mar-22 from 6.2% for Feb-22. Higher oil and other commodity prices and its transmission to prices of manufactured products with gradual demand revival, is reflected in the elevated core inflation levels.

For FY23, our CPI inflation forecast currently stands at 5.9% vs 5.7% from RBI. However, there are further upside risks to this forecast with the sharply higher prices of crude oil and the ongoing pass through to the retail consumers along with a meaningful recovery in consumption demand over the next 2-3 quarters."

Source : Equity Bulls

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