India's CPI inflation print rose sharply to 6.95% YoY in Mar-22 from 6.07% in Feb-22 - Acuité Ratings

The strong headwinds from the spurt in commodity prices driven by the continuing geopolitical conflict between Russia and Ukraine have started to manifest in India's inflation trajectory. As such, India's CPI inflation print rose unexpectedly and sharply, to 6.95% YoY in Mar-22 from 6.07% in Feb-22. On a sequential basis, the index rose by 0.96% as compared to 0.24% in the previous month. This is the highest YoY print over the last 18 months and in sequential terms, a high over the last 5 months. Taking into consideration today's print, inflation for FY22 averaged at 5.5%, in line with Acuité's revised forecasts.

For FY23, inflation drivers are likely to face considerable pressure from persistent hardening of input prices. Taking the average first order impact of 20 bps for every 10% change in oil price on CPI inflation, Acuité projects FY23 CPI inflation at 5.9% in base scenario (considering the average crude oil price of USD 97 pb in FY23) as compared to RBI's forecast of 5.7%.

While Acuité acknowledges the considerable challenge in projecting inflation due to the high volatility in commodity prices and unpredictable geopolitical events, Acuité believes there are upside risks to such forecasts which can take the inflation print beyond MPC's upper band particularly in H1FY23. Acuité believes that there is a significant likelihood that the CPI figure will remain around 7% for the next few months.

Source : Equity Bulls

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CPI Inflation March2022 AcuiteRatings