CPI Inflation: Bracing For 6% Plus Prints Ahead, Emkay Global

CPI inflation remained above the upper tolerance level of the RBI in Feb, with headline inflation at 6.09% (6.01% in Jan'22). The price momentum has turned positive again, led by non-food categories (energy and core), while, on net, food contracted sequentially, with mixed trends seen in perishables, protein goods and other staples. Mandi prices suggest that the fall in vegetable prices has slowed further, while edible oils should see pressure ahead. Core inflation eased to 6.05% from 6.20% even as the MoM momentum picked up pace, led by personal care and housing.

"CPI inflation remained above the upper tolerance level of the RBI in Feb, with headline inflation at 6.09% (6.01% in Jan'22). The price momentum has turned positive again, led by non-food categories (energy and core), while, on net, food contracted sequentially, with mixed trends seen in perishables, protein goods and other staples. Mandi prices suggest that the fall in vegetable prices has slowed further, while edible oils should see pressure ahead. Core inflation eased to 6.05% from 6.20% even as the MoM momentum picked up pace, led by personal care and housing," Emkay Global has said in a report.

"Assuming Brent averages $100/bbl vs. our initial expectation of $85/bbl for FY23, the direct inflation impact with full pass-through could be more than 55bps, while the indirect hit of another 35-40bps could come with a lag amid sustained price pressures. We see CPI inflation averaging above 5.6% with an upside bias. We remain watchful of inflation push-and-pull factors and their impact on MPC's reaction function, which we think will be in a wait-and-watch mode until H1FY23," the brokerage has said.