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India’s Aug retail inflation accelerates to 7% y/y as food prices surge

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BENGALURU — India’s retail inflation accelerated to 7% year-on-year in August, driven by a surge in food prices, adding pressure on the central bank to further hike interest rates later this month.

The monetary policy committee (MPC) of the Reserve Bank of India (RBI) has raised the benchmark repo rate by 140 basis points since May to 5.4%, including 50 basis points last month, aiming to curb consumer demand.

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COMMENTARY

SREEJITH BALASUBRAMANIAN, ECONOMIST, IDFC AMC, MUMBAI

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“August headline CPI of 7% y/y, up from 6.7% in July, was expectedly driven by a turn up in food prices. Sequential price momentum in cereals, vegetables, pulses and milk picked up from that in July while that in vegetable oils, fruits, meat and fish stayed negative. Core inflation momentum was only mildly lower.”

“Real time prices of rice, wheat and vegetables continue to move up in September unlike that of edible oils. While food inflation could define the trajectory of CPI inflation in the short term, other factors like crude oil price, growth and supply chain pressures could be important determinants in the medium term.”

KUNAL KUNDU, INDIA ECONOMIST, SOCIETE GENERALE, BENGALURU

“Another inflation print of 7% bang in line with our expectation confirms our belief that price pressure is not going to go away anytime soon, although being a year-on-year print, inflation may be off the peak.

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“Expectedly food prices moved up sharply as well. Given the tailwind generated by high food prices as production suffers due to erratic monsoon, we do not see consumers’ cup of woes emptying out soon.

“We expect an additional 60 bps rate hike by the RBI before they bring the rate hike cycle to an end as they shift the focus back to growth given the rather dismal employment situation.”

SAKSHI GUPTA, PRINCIPAL ECONOMIST, HDFC BANK, GURUGRAM “Inflation for August is back up to 7% led by higher food inflation — particularly in cereals impacted by uneven monsoons. Core inflation continued to remain sticky close to 6%. Cereal inflation continues to be a concern and could lead to further pressure on the CPI print in September as well.

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“The RBI is likely to raise rates by 50 basis points at the upcoming policy as inflationary pressures continue to linger. Moreover, while domestic conditions remain the primary focus for the RBI, aggressive tightening globally could nudge the central bank to continue front loading rate hikes as a defense for the currency and in turn imported inflation.”

GARIMA KAPOOR, ECONOMIST, INSTITUTIONAL EQUITIES, ELARA CAPITAL, MUMBAI

“August CPI inflation edged higher amid resurgence in food prices amid inclement weather and expected shortage of output of certain commodities like paddy. The uptick in food prices was however partly compensated by lower fuel prices.

“Going forward, CPI should track sub-6% trajectory by Q4FY23 as gains during recent commodity price correction begin to reflect in retail prices. We expect the MPC to hike policy repo rate by another 25-35 bps in September policy before it pauses to assess the impact of rate hikes undertaken since May 2022.”

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RADHIKA RAO, SENIOR ECONOMIST, DBS BANK, SINGAPORE

“Negative seasonality in select food groups, fallout of uneven rainfall and resultant uptick in cereals perked the food sub-component.

“Easing supply-side pressure (oil prices in particular) was a counterweight, while core inflation (ex food and fuel) ticked up to 5.8% y/y.

“The evolving inflation trend largely tracks the central bank’s forecast for 2QFY23 and is unlikely to trigger a change in policy guidance. With base effects expected to perk the headline print in September and ease thereafter, we expect the central bank to moderate the quantum of rate hikes going forward.”

(Reporting by Rama Venkat, Chris Thomas, Nallur Sethuraman in Bengaluru; Editing by Vinay Dwivedi)

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