Another Elevated CPI Print Keeps Pressure On RBI Intact

September CPI inflation further rose to 7.4% led by food, with unseasonal rain disrupting supply, while core inflation stayed sticky at 6.26%. Sequentially, higher prices of staples such as cereals & pulses and of perishables like vegetables & milk along with spices drove up food inflation, Emkay Global has noted in a report.

"Core inflation stickiness showed lower imported-goods' prices were largely offset by rise in prices of other segments.

Prices of global commodities (ex-energy) on an average are easing;, which, if sustained, should release some cost pressure. But one would need to watch for any near-term offsetting factors, which may come from perishable food owing to unseasonal rains, second round lagged impact of higher energy prices, INR weakness, etc. With short-term domestic demand being fairly resilient, core CPI pressure may remain reasonably sticky sequentially, in the near term. That said, lower imported inflation & base effects should directionally still imply lower inflation on YoY basis in H2FY23 vs H1FY23," the Brokerage has said.

"We are currently tracking October inflation at ~6.3%, with inflation in H2FY23 at 6% and the FY23-avg at 6.6%. This is, however, unlikely to derail the RBI's front-loaded tightening path: the RBI is still some distance away from its supposed real neutral rate of 0.8-1%, even as the forward real repo rate has already become a tad positive. We still believe the RBI may not turn too restrictive and stay around the estimated neutral real rates, implying hikes of ~50bps ahead. But we reckon the situation is fluid and the extent of global disruption will remain key to the RBI's reaction function ahead," it further added.

Analysts at Emkay Global still think that the RBI would not turn too restrictive and the terminal rate could hover near the estimated neutral real rates, implying 50bps hikes ahead. "However, the extent of global disruption will remain key to the RBI's reaction function ahead," it noted.