Informist, Tuesday, Nov 22, 2022
By Priyansh Verma and Aditya Saroha
NEW DELHI – India's retail inflation showed signs of price pressures easing in October--the headline number fell to a three-month low of 6.77%--but core inflation remained resolutely sticky around 6.0%, raising doubts about inflation moderating as projected by the Reserve Bank of India.
Core inflation, which excludes volatile items in the CPI basket like food and fuel, has remained around 6% for more than two years, indicating that price pressures of non-volatile components in the basket remain entrenched.
CPI core inflation averaged 6.1% in Apr-Oct compared with 6.0% in 2021-22 (Apr-Mar) and 5.6% in 2020-21. Economists look at core inflation closely as it indicates underlying inflationary pressures in the economy.
Inflation in services--which forms about 80% of core CPI--is likely to stay high and add upward price pressures, said economists. "We expect small price rises to continue among various services such as education and health," Barclays said in a report.
One potential source of upside risk to core CPI is housing inflation as rental inflation, anecdotally, has picked up across key urban areas, it said.
The S&P October services purchasing managers' index said a greater proportion of services companies passed on the increase in cost to clients.
Prices of commodities, which constitute the remaining 20% of core, are also not expected to decline and offer any relief.
"A deeper dive into the core inflation basket suggests that firms continued to pass on higher input costs to consumers, and the services sector reopening added to price pressures," Nomura said in a report.
Though global commodity prices have come down, they have not shown any moderating impact on core inflation, economists said.
"Volatility in global commodity prices has kept producers wary of pass-through of fall in input prices to the consumers," said Anubhuti Sahay, head of South Asia Economics Research (India) at Standard Chartered Bank. "While commodity prices are low today, there is an uncertainty that commodity prices might again climb up at a later date."
In sharp contrast to CPI, core inflation in WPI eased to 4.6% in October from 7.0% a month ago.
The transmission of weaker global commodity prices to core CPI inflation will likely be a prolonged process at best, ICICI Securities Primary Dealership said.
Core CPI, which has a weight of over 47% of the overall basket, may prove to be a hurdle in inflation falling substantially below 6% unless food prices fall drastically, economists said.
The RBI has projected CPI inflation to ease to 6.5% in Oct-Dec and 5.8% in Jan-Mar, before falling to 5.0% in Apr-Jun next year.
CPI inflation averaged 7.0% in Jul-Sep, the third successive quarter it stayed above the upper bound of the medium-term target range of 2-6%.
"As core inflation proves sticky, and with food price pressures showing no signs of swift decline, it is likely headline inflation will stay close to 6.5% in Jan-Mar period as well before favorable base effects pull down inflation in Apr-Jun," said Abhishek Upadhyay, a senior economist with ICICI Securities Primary Dealership.
Food prices have remained elevated, primarily on account of a sharp increase in cereal prices, especially wheat. Inflation in cereals was at an over-nine year high of 12.1% in October.
The headline CPI inflation may have fallen below 7% in October, but core inflation suggests that the underlying price pressures have not eased.
With core inflation continuing to be sticky at around 6%, the Monetary Policy Committee of the RBI is unlikely to loosen the grip on policy tightening in December meeting. End
Edited by Akul Nishant Akhoury
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Informist, Tuesday, Nov 22, 2022
By Priyansh Verma and Aditya Saroha
NEW DELHI – India's retail inflation showed signs of price pressures easing in October--the headline number fell to a three-month low of 6.77%--but core inflation remained resolutely sticky around 6.0%, raising doubts about inflation moderating as projected by the Reserve Bank of India.
Core inflation, which excludes volatile items in the CPI basket like food and fuel, has remained around 6% for more than two years, indicating that price pressures of non-volatile components in the basket remain entrenched.
CPI core inflation averaged 6.1% in Apr-Oct compared with 6.0% in 2021-22 (Apr-Mar) and 5.6% in 2020-21. Economists look at core inflation closely as it indicates underlying inflationary pressures in the economy.
Inflation in services--which forms about 80% of core CPI--is likely to stay high and add upward price pressures, said economists. "We expect small price rises to continue among various services such as education and health," Barclays said in a report.
One potential source of upside risk to core CPI is housing inflation as rental inflation, anecdotally, has picked up across key urban areas, it said.
The S&P October services purchasing managers' index said a greater proportion of services companies passed on the increase in cost to clients.
Prices of commodities, which constitute the remaining 20% of core, are also not expected to decline and offer any relief.
"A deeper dive into the core inflation basket suggests that firms continued to pass on higher input costs to consumers, and the services sector reopening added to price pressures," Nomura said in a report.
Though global commodity prices have come down, they have not shown any moderating impact on core inflation, economists said.
"Volatility in global commodity prices has kept producers wary of pass-through of fall in input prices to the consumers," said Anubhuti Sahay, head of South Asia Economics Research (India) at Standard Chartered Bank. "While commodity prices are low today, there is an uncertainty that commodity prices might again climb up at a later date."
In sharp contrast to CPI, core inflation in WPI eased to 4.6% in October from 7.0% a month ago.
The transmission of weaker global commodity prices to core CPI inflation will likely be a prolonged process at best, ICICI Securities Primary Dealership said.
Core CPI, which has a weight of over 47% of the overall basket, may prove to be a hurdle in inflation falling substantially below 6% unless food prices fall drastically, economists said.
The RBI has projected CPI inflation to ease to 6.5% in Oct-Dec and 5.8% in Jan-Mar, before falling to 5.0% in Apr-Jun next year.
CPI inflation averaged 7.0% in Jul-Sep, the third successive quarter it stayed above the upper bound of the medium-term target range of 2-6%.
"As core inflation proves sticky, and with food price pressures showing no signs of swift decline, it is likely headline inflation will stay close to 6.5% in Jan-Mar period as well before favorable base effects pull down inflation in Apr-Jun," said Abhishek Upadhyay, a senior economist with ICICI Securities Primary Dealership.
Food prices have remained elevated, primarily on account of a sharp increase in cereal prices, especially wheat. Inflation in cereals was at an over-nine year high of 12.1% in October.
The headline CPI inflation may have fallen below 7% in October, but core inflation suggests that the underlying price pressures have not eased.
With core inflation continuing to be sticky at around 6%, the Monetary Policy Committee of the RBI is unlikely to loosen the grip on policy tightening in December meeting. End
Edited by Akul Nishant Akhoury
For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.
Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.
Informist Media Tel +91 (11) 4220-1000
Send comments to feedback@informistmedia.com
© Informist Media Pvt. Ltd. 2022. All rights reserved.
