Perspective on CPI Data by Ms. Rajani Sinha, Chief Economist, CareEdge Ratings
Below the Perspective on CPI Data by Ms. Rajani Sinha, Chief Economist, CareEdge Ratings
“August CPI inflation rose to 4.8% from 4.5% in July, while core inflation also inched up marginally to 4.4% from 4.2% in July. However, core inflation excluding precious metals remained benign at 3.3% in August, despite a marginal uptick. The uptick in headline inflation is likely to be primarily driven by higher food prices, with price pressures visible across several categories, including sugar, rice, edible oil and select vegetables such as onions. Onion prices have been impacted by delayed new plantings due to late monsoon, resulting in a delay in the arrival of the new harvest in the market. Meanwhile, lower-than-expected sugarcane yields and a shift towards ethanol production have tightened the domestic availability of sugar, thereby pushing up sugar prices. Apart from food prices, global energy prices remained volatile amid the conflict in the Middle East. Higher input costs were reflected in transport inflation through higher energy prices, while higher cooking fuel and food prices kept inflation elevated in restaurant and accommodation services. Interestingly, despite remaining benign, inflation in the information and communication category inched up sharply in August. This could be partly attributed to robust global demand for memory chips amid the AI boom, which is gradually feeding through into domestic retail prices. In line with CPI, WPI also inched up to 9.9% in August from 9.8% in July, driven by rising prices of food and fuel.
The inflation outlook remains vulnerable to both external and weather-related risks. Uncertainty surrounding transit through the Strait of Hormuz continues to pose upside risks to global energy prices. Domestically, below-normal rainfall remains a key concern. While sowing activity has improved following a delayed start, concerns around agricultural yields persist. Edible oil prices also warrant close monitoring, given India’s high import dependence and elevated global prices. The trajectory of food inflation will ultimately depend on the spatial and temporal distribution of rainfall. We project CPI inflation to peak in Q3 FY27 and average around 5.0% in FY27. On the monetary policy front, the MPC is likely to remain data-dependent, with its stance guided by evolving growth-inflation dynamics. A sustained uptick in inflation could strengthen the case for a rate hike in the coming months. The October RBI policy decision will be crucial to watch, especially as some major central banks have already embarked on a rate-hiking cycle.”
Above views are of the author and not of the website kindly read disclaimer
