Inflation Policy-Rate Action Likely To Be Modest In India Vs Peers: Anand Rathi

Retail inflation in Jan'22 hardened for the fourth successive month to 6%. "The unfavourable base for food and pass-though of costs in some industries pushed inflation up. Although high at 6%, core inflation was stable. While fuel and transport inflation abated as international crude oil price rises have not been passed on since Nov'21, this may change soon. If inflation abates in H2 FY23, as expected by the RBI, monetary tightening in India would be lower than most peers. We reduce our rate-hike expectation in 2022 to 50bps, from 100 basis points," Anand rathi has said in a report.

Inflation on upward trajectory

In Jan'22, India's retail inflation touched 6%, the fourth successive rise and the highest since Jul'21. The inflation rate, however, was in line with consensus expectation.

Food, the driver. Food inflation in Jan'22 rose to 5.4%, from 4% the previous month. Core inflation was unchanged at 6.0% in Jan'22, the same as the month prior. Fuel inflation reduced to 9.3% in Jan'22, the first single-digit reading after eight months.

"Inflation levers rotating. In the recent past, the inflation build-up in India arose chiefly from global factors - high commodity prices especially crude and edible oil. This, however, is changing. Global commodity price pressures, excluding crude oil, have abated a bit. With retail prices of petroleum products unchanged since Nov'21, fuel and transport inflation rates have abated. These have been more than compensated for by selective pass-though of cost inflation in certain sectors and the unfavourable base effect for food products. The food price index, however, recorded the second successive decline.

Inflation outlook not alarming. The depressed base of the last 12 months and expected hikes in the minimum support prices (MSP) for agricultural products (to support rural incomes) are likely to result in rising food inflation. We expect core inflation to fall. Average inflation for the next 12 months is likely to be around 5% - largely in line with the RBI's estimates," Anand rathi has said in a report.