September CPI inflation at 7.41 per cent: How analysts interpret the number

Analysts at UBS expect headline CPI inflation to average 6.7 per cent YoY in FY23 and see RBI's policy outlook to be data dependent contingent on the Fed action

The consumer price inflation (CPI) print of 7.41 per cent in September came in much higher than the Reserve Bank of India’s (RBI’s) comfort level of 6 per cent, mainly led by food inflation that skyrocketed to a 22-month high of 8.6 per cent in the month gone by. READ MORE

Here’s how leading brokerages and economists have interpreted the numbers.

UBS

The unseasonal rains during early October may adversely affect the summer crop yields, thereby posing upside risks to food inflation in the near-term. We continue to expect headline CPI inflation to average 6.7 per cent YoY in FY23 and see RBI's policy outlook to be data dependent contingent on the Fed action, India's external sector risks and the lagged impact of monetary tightening on India's inflation and domestic growth outlook. In our base case, we expect the monetary policy committee (MPC) to raise the repo rate by another 35 basis points (bps) to 6.25 per cent in December 2022.

Morgan Stanley

We expect a gradual moderation in inflation with CPI trending a tad below the 6 per cent mark by February/March 2023. We expect CPI inflation to average 6.5 per cent in FY23. Risks to the upside could emerge from unexpected changes in the food or commodity price trajectories. We expect a 35bp rate hike in the December policy review and peg the terminal rate for the current rate hike cycle at 6.5 per cent, to be reached by February 2023. Risks of a higher increase in policy rates in December's review will be contingent on external factors such as movement in oil prices and/or capital market environment.

Goldman Sachs

Upside risks to food inflation emanate mainly from cereals due to supply shortages and vegetables amidst reports of excessive rains affecting harvests in certain parts of the country. Recent increase in natural gas prices are also likely to contribute to fuel inflation going forward. We expect headline inflation to decline in October to 6.7 per cent yoy as we expect lower food inflation due to a high base last year.

Nomura

We do not rule out further increases in food prices in the coming months and expect headline inflation to average 6.8 per cent y-o-y in 2022, before moderating to 5.5 per cent in 2023. As the global slowdown materialises and remains entrenched, pent-up demand fades and financial conditions tighten, we expect GDP growth to slow from 7.2 per cent y-o-y in 2022 to a below-consensus 4.7 per cent in 2023 (7 per cent in FY23; 5.2 per cent in FY24).

SBI

Going forward, the unseasonal rains in different parts of the country up to 700 per cent in cereal producing states could have a significantly large impact on cereal and vegetable prices. With increased Fed rate hikes in 2022 and an adverse inflation forecast, RBI will have to walk a fine balance of rate hikes. We believe that the terminal repo rate in the current cycle could now extend till February 2022, with a 50 bps rate hike penciled in December policy.

ICRA

The excessive rainfall in early October 2022 may adversely impact the kharif harvest and delay rabi sowing, thereby posing a material upside risk to the food inflation outlook. However, the impact of the same on the YoY food inflation prints is likely to be partly mollified by the high base that lies ahead for H2 FY2023. The quantum of the next rate hike by the RBI will be determined by how much the inflation print recedes in October 2022, as well as the strength of the GDP growth for Q2-FY23.
 

QuantEco Research

Risks to food inflation are now stacked on the upside due to a host of reasons and can be broadly classified as seasonal, global and administrative, such as uneven distribution of southwest monsoon, lower Kharif sowing (of Rice and pulses) and anticipated shortfall in Kharif output, intense rain spell in October 2022 and extension of PMGKY up to December 2022 along with elevated festive season demand over October-November 2022. As such, we revise our FY23 CPI forecast up by 20 bps to 6.7 per cent, as a possible upside in food may not get fully offset by some comfort on fuel at the margin i.e., if the recent softening in global crude oil sustains with price remaining in the $90-100 per barrel range.