Suman Chowdhury, Chief Analytical Officer, Acuité Ratings & Research
"India's headline CPI inflation for Aug'22 has been slightly higher than our expectations, climbing to 7.0% from 6.7% in the previous month albeit with moderate sequential growth of 0.52%. The key driver for the renewed pressure is the rise in food inflation to 7.6% driven by the higher prices of cereals. A lower harvest of wheat in the last rabi season and an expected lower output of rice in the current Kharif season are driving the inflation in the cereal category.
Out of 12 sub-categories in food, 8 categories have seen a sequential increase in Aug'22 whereas animal protein items, edible oil, and fruits witnessed a decline. The reduction of supply challenges in the case of imported edible oil, lower international prices, and imports at lower duties have continued to moderate domestic prices which are expected to go down further in the near term.
Core inflation has continued to be firm at 6.11% YoY albeit it has seen a modest growth of 0.51% on a sequential basis. This indicates that the pass-through by manufacturers has not picked up the pace and may continue to be that way unless there are stronger demand signals.
While the depreciation of the rupee has raised the risks of imported inflation, some steps taken by the government such as higher crude imports at a discount from Russia have partly helped to address such risks. We believe that the incremental pressures on CPI inflation should be moderate unless there are surprises in the Kharif crop output.
Nevertheless, the current inflation levels are high for the comfort of MPC which is looking to pare them down below 6.0% by Q3FY23. We, therefore, expect a further rate hike of around 50 bps by RBI in the next MPC meet."